Internal Geography, International Trade, and Regional Specialization
NBER Working Paper No. 19697
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. We find regional specialization patterns consistent with the model in industry-level data from Chinese prefectures.
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This paper was revised on August 19, 2014
Document Object Identifier (DOI): 10.3386/w19697
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