Market Size in Globalization
64 Pages Posted: 23 Jan 2017 Last revised: 8 Dec 2017
Date Written: December 2017
A salient feature of the current globalization is a loss of manufacturing in developed countries and rapid industrialization in middle-sized developing countries. This paper aims to construct a simple three-country trade and geography model with different market sizes and endogenous wage rates. The large country fosters industrial agglomeration (geographical concentration) in the early stage of globalization, but loses manufacturing in the later stage of globalization. When losing manufacturing, the large country might be worse off. Thus, the large country might have an incentive to implement welfare-maintaining policies to prevent a loss of manufacturing. All of these results can be explained by market sizes.
Keywords: Agglomeration; Market Size; Middle-Sized Country; Endogenous Wages; Industry/Welfare Maintaining Policy
JEL Classification: F12; F15; F20
Suggested Citation: Suggested Citation