Reference : Firms' locations under demand heterogeneity
Scientific journals : Article
Business & economic sciences : Social economics
Firms' locations under demand heterogeneity
Picard, Pierre M. mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Okubo, Toshihiro [> >]
Regional Science and Urban Economics
Elsevier Science
Yes (verified by ORBilu)
[en] heterogeneous taste and quality ; spatial selection ; economic geography ; agglomeration ; home market effect.
[en] In this paper we build an economic geography model where rms sell product varieties with
heterogenous demands. We show that rms selling the products with higher demands select to set up their plants in larger countries. Larger countries do not only get better access to more varieties but also to the most demanded and valuable ones. The impact of such a spatial selection on fi rms location choice depends on the skewness of the distribution of demand intensity across varieties. In a model where only capital moves across regions, demand heterogeneity generally diminishes the amount of capital invested in the larger country. In a model where the work force moves across regions, demand heterogeneity is shown to eliminate dramatic changes in the location patterns and to result in the asymmetric dispersion of workers, rather their symmetric dispersion or complete agglomeration in a specic region.
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