Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/69560
Authors: 
von Ehrlich, Maximilian
Seidel, Tobias
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper: Trade Policy 4063
Abstract: 
We develop a heterogeneous-firms model with trade in goods, labor mobility and credit constraints due to moral hazard. Mitigating financial frictions reduces the incentive of high-skilled workers to migrate to one region such that an unequal distribution of industrial activity becomes less likely. Hence, financial market development has opposite regional implications as trade liberalization. While the former leads to more dispersion of economic activity across space, the latter tends to drive clustering. We provide empirical evidence for this hypothesis by combining industry-region variation in the spatial concentration of economic activity with information on the access to credit and the dependence on external finance. Our estimates for 20 European countries and eleven industries confirm that financial market development mitigates the clustering of economic activity.
Subjects: 
financial market development
credit constraints
moral hazard
location
migration
heterogeneous firms
trade
labor mobility
JEL: 
F12
F36
R11
Document Type: 
Working Paper

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