December 2000

Globalisation and Industrial Location: The Impact of Trade Policy when Geography Matters

This paper shows how industrial location and welfare depends on "most-favored nation" (MFN) versus distance-related trade barriers, using a monopolistic competition model with regions located along a "Hotelling" line or on a square plain. The paper seeks to analyze regional issues in a framework where international trade and trade policy matters, and to analyze international trade and trade policy in a framework where geography matters. The paper argues that while lower transport costs create more centralization within countries, lower MFN barriers between countries have the opposite effect.

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