Departmental Bulletin Paper Industrial Location and North-South Trade in Vertically-linked Industries

Kurata, Hiroshi  ,  Nomura, Ryoichi  ,  Suga, Nobuhito

288pp.1 - 32 , 2015-09 , Graduate School of Economics & Business Administration, Hokkaido University
This study clarifies how a reduction in trade costs affects location and economic welfare in an economy with a vertically-linked industry. We focus on location in upstream and downstream sectors and economic welfare for a reduction in trade costs for intermediate goods. We show that the reduction in trade costs makes upstream and downstream production in the North move to the South, and further liberalization makes some of the upstream productions remove back to the North. We also demonstrate that such reduction in trade costs improves world welfare but does not necessarily benefit for each country.

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