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Title:Trade and location with land as a productive factor PDF Logo
Authors:Pflüger, Michael
Tabuchi, Takatoshi
Issue Date:2008
Series/Report no.:IZA discussion papers 3716
Abstract:This paper is motivated by the fact that, contrary to its importance in practice, the role of land for production has received no attention in the new trade theory and the new economic geography. We set up a simple monopolistic competition model and we show that, due to the factor proportions effect which emerges when land is used as a productive factor besides labor, a number of tenets of the new trade and geography literature no longer hold. We also show that in order to explain the stylized facts, notably that wages are higher in larger locations, land-use for production and housing has to be taken into account. Our analysis furthermore implies that market-size based agglomeration forces are too weak to overcome the very strong congestion force associated with competition for land, unless the consumers' desire of variety (as expressed by a low elasticity of substitution) is very strong. This suggests that further agglomeration forces have to be invoked to explain the agglomeration of economic activity observed in the real world.
Subjects:Trade and location
land for production
agglomeration
relative wage
home market effect
JEL:F12
Persistent Identifier of the first edition:urn:nbn:de:101:1-20081014150
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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