TY  - JOUR
AU  - Hanson,Gordon H.
TI  - Localization Economies, Vertical Organization and Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4744
PY  - 1994
Y2  - May 1994
UR  - http://www.nber.org/papers/w4744
L1  - http://www.nber.org/papers/w4744.pdf
N1  - Author contact info:
Gordon H. Hanson
IR/PS 0519
University of California, San Diego
9500 Gilman Drive
La Jolla, CA  92093-0519
Tel: 858/822-5087
Fax: 858/534-3939
E-Mail: gohanson@ucsd.edu
AB  - This paper develops a model of regional production networks based on localization economies.  I consider an industry with two activities: one with location-specific external economies, the other with constant returns.  Under autarky, localization economies imply the formation of an industry center.  Agglomeration drives up wages in the center, causing the constant returns activity to disperse to outlying regions.  Trade recreates the regional production network on a global scale.  I apply the model to data from the Mexican apparel industry.  Estimation results on Mexico's pre- and post-trade regional apparel wage structure are consistent with localization economies. Implications for the North American Free Trade Agreement (NAFTA) are discussed.
ER  -