A U-shaped Europe? : a simulation study of industrial location
Working paper
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Date
1999-09Metadata
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- Discussion papers (SAM) [663]
Abstract
This paper uses a full-scale CGE-model - calibrated on 1992 data - to investigate the effects
of European integration on the location of industrial production. Our results reveal large
differences among individual industries. Industries with high scale elasticities typically
display a non-monotonous relationship between trade liberalisation and concentration, with
maximal concentration for intermediate trade costs. Other industries, more driven by
comparative advantage, become more and more concentrated as trade costs are lowered. On
the aggregate European level we find an (inverse) U-shaped relation between trade costs and
concentration, with Europe 1992 close to the peak of concentration. The results also show a
close correlation between real income gains and growth in manufacturing production; we
label this an “externality shifting” effect – gains from pecuniary externalities in the
manufacturing sectors. Finally, we note that nominal factor prices co-vary as regions specialise, while in relative terms there are traces of the Stolper-Samelson theorem.
Publisher
Norwegian School of Economics and Business Administration. Department of EconomicsSeries
Discussion paper1999:19