NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Internal Geography, International Trade, and Regional Specialization

A. Kerem Coşar, Pablo D. Fajgelbaum

NBER Working Paper No. 19697
Issued in December 2013
NBER Program(s):   ITI

We introduce an internal geography to the canonical model of international trade driven by comparative advantages to study the regional effects of external economic integration. The model features a dual-economy structure, in which locations near international gates specialize in export-oriented sectors while more distant locations do not trade with the rest of the world. The theory rationalizes patterns of specialization, employment, and relative incomes observed in developing countries that opened up to trade. Our empirical analysis based on industry-level data from Chinese prefectures demonstrates that international trade is an important driver of industry location within China as the theory implies.

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