Competition in the traditional sector does not matter for the ‘Core–Periphery’ model

Strategic investment and industry location in a footloose capital model of economic geography

“…Concretely, we introduce strategic capitalists into the FC model with homogeneous Cournot competition. 3 We show that the home market effect is robust, but moderated by the strategic investment. Our conclusion is that the imperfectly competitive capital market does not qualitatively affect the key insight in the FC model, but quantitatively affects it.…”

“… See Baldwin et al (2003) 2. See, for example,Knill (2009) and Bartkus and Hassan (2009) for empirics 3. While NEG usually assumes a monopolistically competitive good market,Ludema and Wooton (2000),Haufler and Wooton (2010) and Thisse (2010) use a homogeneous good Cournot model.…”

Core-Periphery vs. Home Market Effect: Trade in the Traditional Sector and the Demand Advantage

“…We note that (26) does not directly include the share ϕ of immobile workers and traditional sector trade costs τ A . Moreover, (26) characterizes (up to the normalization we choose) the relative mobile workers wage in equilibrium when τ A = 1 and ϕ = 1/2 (Sidorov and Zhelobodko, 2013) as well as when the traditional sector produces under monopolistic competition (Behrens et al, 2014). Formula (26) implies that the relative wage in advanced manufacturing varies in the following interval:…”

“…Short-run equilibrium. We dene short-run equilibrium as a bundle of per-capita consumptions x ij with corresponding prices p ij , i, j = H, F , masses of rms N H , N F and wages w H M , w F M in countries, and relative wage w A in the traditional sector satisfying the consumer's 2 Behrens et al (2014) show that the spatial pattern is independent of the technology in the second sector. and producer's maximization problems as well as balances in labour markets and trade ows, consumer's budget constraints and zero-prot conditions for dierentiated sector rms.…”