TY  - JOUR
AU  - Baldwin,Richard
AU  - Okubo,Toshihiro
TI  - Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11650
PY  - 2005
Y2  - October 2005
UR  - http://www.nber.org/papers/w11650
L1  - http://www.nber.org/papers/w11650.pdf
N1  - Author contact info:
Richard Baldwin
Cigale 2
1010 Lausanne
SWITZERLAND
Tel: 41-22-908-5900
E-Mail: rbaldwin@cepr.org

Toshihiro Okubo
RIEB Kobe University
2-1, Rokkodai cho, Nada-ku, Kobe,
657-8501 JAPAN
E-Mail: okubo@rieb.kobe-u.ac.jp
M2  - featured in NBER digest on 2005-10-03
AB  - A Melitz-style model of monopolistic competition with heterogeneous firms is integrated into a simple New Economic Geography model to show that the standard assumption of identical firms is neither necessary nor innocuous. We show that re-locating to the big region is most attractive for the most productive firms; this implies interesting results for empirical work and policy analysis. A 'selection effect' means standard empirical measures overestimate agglomeration economies. A 'sorting effect' means that a regional policy induces the highest productivity firms to move to the core while the lowest productivity firms to move to the periphery. We also show that heterogeneity dampens the home market effect.
ER  -