Spatial inequality, globalization, and footloose capital

Toshiaki Takahashi, Hajime Takatsuka, Dao Zhi Zeng

Research output: Contribution to journalArticlepeer-review

31 Citations (Scopus)

Abstract

This paper shows the equivalence of spatial inequalities in industrial location and in income by revisiting the home market effect (HME) without any homogeneous good based on a reconstructed footloose capital model. In this simple framework, spatial inequalities in industrial location and in income are the HMEs in terms of firm share and wage, respectively. We show that the larger country has a more-than-proportionate share of firms and a higher wage. Furthermore, both the wage differential and the industrial location in the larger country evolve in an inverted U-pattern when transport costs decline. Finally, we analytically examine the effects of trade liberalization on the welfare and show that both countries may gain from globalization.

Original languageEnglish
Pages (from-to)213-238
Number of pages26
JournalEconomic Theory
Volume53
Issue number1
DOIs
Publication statusPublished - 2013 May

Keywords

  • Footloose capital
  • Globalization
  • Home market effect
  • Spatial inequality

ASJC Scopus subject areas

  • Economics and Econometrics

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