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Resisting Economic Integration when Industry Location is Uncertain

Gallo, Fredrik LU (2006) In Working Papers, Department of Economics, Lund University
Abstract
This paper analyses the political determination of transportation costs in a new economic geography model. In a benchmark case with certainty about where agglomeration takes place, a majority of voters favour economic integration and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty, a high level of trade costs may win the election and maintain the initial distribution of industry. The reason is that a coalition of risk-averse immobile factors of production votes for the status quo due to uncertainty about which region will attract industry if economic integration is pursued. Finally, the standard view that agglomeration is unambiguously beneficial to residents in the industrial... (More)
This paper analyses the political determination of transportation costs in a new economic geography model. In a benchmark case with certainty about where agglomeration takes place, a majority of voters favour economic integration and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty, a high level of trade costs may win the election and maintain the initial distribution of industry. The reason is that a coalition of risk-averse immobile factors of production votes for the status quo due to uncertainty about which region will attract industry if economic integration is pursued. Finally, the standard view that agglomeration is unambiguously beneficial to residents in the industrial centre is challenged by introducing costs of undertaking economic integration (Less)
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author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
footloose entrepreneur model, majority voting, new
in
Working Papers, Department of Economics, Lund University
issue
22
publisher
Department of Economics, Lund Universtiy
language
English
LU publication?
yes
id
8590d0ef-8729-40a0-a413-e42f7357420a (old id 1387610)
alternative location
http://swopec.hhs.se/lunewp/abs/lunewp2006_022.htm
date added to LUP
2009-04-20 12:27:26
date last changed
2016-10-07 15:29:35
@misc{8590d0ef-8729-40a0-a413-e42f7357420a,
  abstract     = {This paper analyses the political determination of transportation costs in a new economic geography model. In a benchmark case with certainty about where agglomeration takes place, a majority of voters favour economic integration and the resulting equilibrium is an industrialised core and a de-industrialised periphery. Allowing for uncertainty, a high level of trade costs may win the election and maintain the initial distribution of industry. The reason is that a coalition of risk-averse immobile factors of production votes for the status quo due to uncertainty about which region will attract industry if economic integration is pursued. Finally, the standard view that agglomeration is unambiguously beneficial to residents in the industrial centre is challenged by introducing costs of undertaking economic integration},
  author       = {Gallo, Fredrik},
  keyword      = {footloose entrepreneur model,majority voting,new},
  language     = {eng},
  number       = {22},
  publisher    = {ARRAY(0xbb68fb0)},
  series       = {Working Papers, Department of Economics, Lund University},
  title        = {Resisting Economic Integration when Industry Location is Uncertain},
  year         = {2006},
}