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Agglomeration and Diversification in Trade and Location

Applicant Brülhart Marius
Number 113938
Funding scheme Project funding (Div. I-III)
Research institution Institut Créa HEC Lausanne
Institution of higher education University of Lausanne - LA
Main discipline Economics
Start/End 01.12.2006 - 31.12.2008
Approved amount 176'966.00
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Keywords (9)

International trade; Agglomeration; Labor Markets; Diversification; geographic agglomeration forces; wages; employment; export diversification; econometric panel data

Lay Summary (English)

Lay summary
The proposed research project aims at furthering our understanding of economic agglomeration and diversification processes in two directions:(A) the implications for wages and employment of geographic agglomeration forces, and (B) the evolution of trade patterns along the stages of economic development. The two projects will be based on very similar theoretical frameworks (“new” theories of trade and economic geography) and empirical approaches (panel data with potential endogeneity).The sub-project (A) aims to shed new light on the nature of geographic agglomeration forces, by distinguishing their effects on wages from their effects on employment. Somewhat surprisingly, this fundamental distinction is only just beginning to be addressed by scientific research in trade and economic geography. We will therefore benefit from somewhat of a “first-mover advantage”. Based on a theoretical model, we seek to gauge empirically the relative importance of the two effects across sectors, regions and time; and to determine the main channels of adjustment.Identification will rely on a difference-in-difference approach based on quasi-natural experiments from exogenous changes in market access. In addition, we will search for explanations of observed agglomeration-induced employment and wage effects, focusing particularly on the role of differences in regulatory frameworks. Given the crucial difference between wage and employment adjustment (for instance for the nature of regional inequalities), our findings are thus bound to be highly policy relevant.The sub-project (B) aims at studying the evolution of the product specialization of exports along exporting countries’ development path in two steps. First, as per capita income rises, do countries export a wider set of goods (the extensive margin), larger quantities of each good (the intensive margin), or both? As there is no clear theoretical prediction either way, the question is essentially an empirical one. However, determining the respective importance of intensive versus extensive margins is not enough to draw policy implications with regard to development. Two additional questions arise. In the case of the extensive margin, what are the characteristics of newly exported products? Are they vertically differentiated, moving from low-skilled/labour-intensive segments to high-skilled/capital-intensive ones over the economic development process? In the case of the intensive margin, what we call specialization within products can be used to test old versus new trade theories directly (in new trade theory, within-product specialization is horizontal; in old theory, it is vertical, as varieties are related to endowments and technology). The project can generate potentially important policy implications for the design of industrial policy, in particular on the question of targeted vs. “horizontal” support policies.
Direct link to Lay Summary Last update: 21.02.2013

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