On the Impact of Competition on Trade and Firm Location

24 Pages Posted: 3 Nov 2014

See all articles by Toshihiro Okubo

Toshihiro Okubo

Keio University

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA); Universite du Luxembourg

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Date Written: November 2014

Abstract

We study how the level of trade costs and the intensity of competition interact to explain the nature and intensity of trade within a given industry and the location of firms across countries. As trade costs decrease from very high to very low values, the global economy moves from autarky to two‐way trade, through one‐way trade from the larger to the smaller region. By exploring the intensive and extensive margins of exports, we investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore, when firms are free to change location, they flow from the small to the large country, and the larger country is always a net exported on the manufactured good. Firms located in the big country have a bigger size than those located in the small one. Under one‐way trade, the relocation of firms changes their attitude toward export.

Suggested Citation

Okubo, Toshihiro and Picard, Pierre M. and Thisse, Jacques-François, On the Impact of Competition on Trade and Firm Location (November 2014). Journal of Regional Science, Vol. 54, Issue 5, pp. 731-754, 2014. Available at SSRN: https://ssrn.com/abstract=2518804 or http://dx.doi.org/10.1111/jors.12139

Toshihiro Okubo (Contact Author)

Keio University ( email )

2-15-45 Mita
Minato-ku
Tokyo, 108-8345
Japan

Pierre M. Picard

Centre de Recherche en Économie Appliquée (CREA) ( email )

Campus Limpertsberg
162A, avenue de la Faïencerie
Luxembourg, 1511
Luxembourg

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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