The spatial selection of heterogeneous quality: An approach using different demand elasticities

Ching-Mu Chen, Dao Zhi Zeng

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper incorporates heterogeneous demand elasticities and the quality/skill complementarity of production in a footloose capital model in order to explain the spatial selection of firms with differentiated quality. We find that when trade becomes freer, high-quality firms agglomerate in the region that accommodates more high-skilled labor, whereas low-quality firms move to the region that hosts more low-skilled labor. If trade freeness is high, the spatial separation of high- and low-quality firms occurs. This paper also points out the positive effect of integration on welfare owing to the specialization of product quality.

Original languageEnglish
Pages (from-to)179-202
Number of pages24
JournalInternational Journal of Economic Theory
Volume10
Issue number2
DOIs
Publication statusPublished - 2014 Jun

Keywords

  • Quality heterogeneity
  • Sep economic geography
  • Sep heterogeneous demand elasticity
  • Sep spatial selection
  • Sep trade liberalization

ASJC Scopus subject areas

  • Economics and Econometrics

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