DP4065 Inter-regional and International Trade: Seventy Years After Ohlin

Author(s): Kristian Behrens , Carl Gaigné , Gianmarco Ireo Paolo Ottaviano , Jacques-François Thisse

Publication Date: September 2003

Keyword(s): economic geography , agglomeration , trade costs , transport costs

JEL(s): F12 , F16 , R12

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4065.asp

We study the impact of falling trade costs and falling national transport costs on the economic geography of countries involved in an integration process. Two regions between which labour is mobile form each country, but there is no international factor mobility. Commodities can be traded both nationally and internationally at positive but different costs. In our setting, a decrease in trade costs and/or in national transport costs has direct impact on prices and wages in both countries. This allows us to study how the variations of these parameters affect the terms of trade and the levels of welfare, as well as to account for their impact on the economic geography of each country in a way that significantly differs from what has been accomplished so far.