Egger, Peter Gruber, Stefan Larch, Mario Pfaffermayr, Michael
Year of Publication:
CESifo Working Paper No. 1432
Center for Economic Studies and ifo Institute (CESifo), Munich
We incorporate the now standard knowledge-capital model of multinational firms in a new economic geography setting. The theoretical predictions of our model suggest that unskilled labor mobility leads to less concentration of production than skilled labor mobility does. This is in line with empirical evidence that agglomeration of production among European nations is less pronounced than among US regions. Our model shows that the different patterns in labor mobility can explain actual differences in the spreading of industries. According to our welfare analysis, trade liberalization is likely Pareto-improving for a larger (smaller) country with mobile unskilled (skilled) labor. In the supplement, we investigate the sensitivity of our results in several respects.
knowledge-capital model new economic geography unskilled labor mobility skilled labor mobility