Globalization and the Inequality of Nations, Issue 5098A monopolistically competitive manufacturing sector produces goods used for final consumption and as intermediates. Intermediate usage creates cost and demand linkages between firms and a tendency for manufacturing agglomeration. How does globalization affect the location of manufacturing and gains from trade? At high transport costs all countries have some manufacturing, but when transport costs fall below a critical value a core-periphery pattern spontaneously forms, and nations that find themselves in the periphery suffer a decline in real income. At still lower transport costs there is convergence of real incomes, in which peripheral nations gain and core nations may lose. |
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Appendix backward linkages Cobb-Douglas competition consumer price index core and periphery core-periphery pattern critical level critical value Customs Unions decline effect equation expenditure on manufactured factor price equalization Figure VIII force in manufacturing forward linkage free trade gopher at nber.harvard.edu Growth Hendershott high trade costs important industry inside the back instructions inside International Krugman level of trade linkages between firms list of NBER manufacturing agglomeration manufacturing labor demand manufacturing sector produces marginal cost Martin Feldstein Massachusetts Avenue maximum wage monopolistic competition NBER Working Papers Neumark North and South Northern firms Northern real Northern tariff Northern wage output Papers and Reprints Partial Subscription Patric H Paul Krugman protectionism Rational Expectations real income real wage 0.8 reduces region returns to scale share of intermediates share of manufactures single area Southern real wages trade policy transport costs fall uneven development wage differential wage rate world economy zero profit