The importance of the asymmetry in trade costs in defining the spatial distribution of the economic activity

Mendoza

Congreso; XLIV Reunión Anual de la Asociación Argentina de Economía Política; 2009

Asociación Argentina de Economía Política

The author studies the relevance of trade costs in determining the economic landscape. The Linear Footloose Capital Model is extended in order to consider asymmetric trade costs. Key insights arise. Firstly, when the own-price effect is low and product differentiation is high, the impact of the market size on the spatial distribution of firms is strong. Secondly, the region with a relevant and well protected market attracts firms. This paper presents a background in which it is plausible to disentangle analytically the effects of absolute and relative trade costs and to reach the equilibrium of the spatial distribution of firms.