Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2001:14: Internalistation, Industrial Policy and Clusters

Rikard Forslid () and Karen Helene Midelfart Knarvik ()
Additional contact information
Rikard Forslid: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Karen Helene Midelfart Knarvik: Institute for Research in Economics and Business Administration, Postal: SNF, Breiviksveien 40, 5045 Bergen, NORWAY

Abstract: This paper analyses industrial policy in a high wage open economy hosting an agglomeration consisting of vertically linked upstream and downstream firms. Optimal policy towards upstream and downstream industries differ radically in this setting. However the restriction that the agglomeration should be sustained may restrict the otherwise welfare maximising policy.

Keywords: agglomeration; clusters; taxes

JEL-codes: F12; F15; F21; R12

27 pages, December 17, 2001

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