Working Papers, Department of Economics, Lund University
Resisting Economic Integration when Industry Location is Uncertain
Abstract: This paper analyses the political determination of
transportation costs in a new economic geography model. In a benchmark case
with certainty about where agglomeration takes place, a majority of voters
favour economic integration and the resulting equilibrium is an
industrialised core and a de-industrialised periphery. Allowing for
uncertainty, a high level of trade costs may win the election and maintain
the initial distribution of industry. The reason is that a coalition of
risk-averse immobile factors of production votes for the status quo due to
uncertainty about which region will attract industry if economic
integration is pursued. Finally, the standard view that agglomeration is
unambiguously beneficial to residents in the industrial centre is
challenged by introducing costs of undertaking economic integration.
Keywords: footloose entrepreneur model; majority voting; new economic geography; regional policy; (follow links to similar papers)
JEL-Codes: F12; F15; R12; (follow links to similar papers)
31 pages, November 16, 2006
This paper replaces WP 2005:32 "Determining the Level of Transportation Costs in the Core-Periphery Model: a Majority Voting Approach"
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