Interconnected Communications Networks and Home Market Effects
Kobe University - Faculty of Economics
Canadian Journal of Economics, Vol. 38, No. 3, pp. 870-882, August 2005
This study develops a model of trade that highlights the effects of the interconnection of country-specific communications networks as a driving force behind trade in high-tech products with positive transport costs. By constructing a two-country model of monopolistic competition with two production factors, it is shown that the locational decisions of firms may magnify the influence of interconnected networks. In a reversal of the standard home market effects, the abundance of unskilled labour in the developing countries can attract high-tech firms from the developed countries.
Number of Pages in PDF File: 13
JEL Classification: D43, F12, L13
Date posted: August 8, 2005
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