Location and distance in economics

Thesis

In this collection of essays, I explore three topics where space and distance plays a fundamental role in international economics. Not only do spatial considerations affect the pattern of trade, the frictions that arise from distance also determine where and how goods are produced and where people live.

In Chapter 1, I show that human made locational characteristics can determine the spatial allocation of economic activity. I take the standard core-periphery model and add endogenous housing to its forward-looking dynamic adjustment process. By introducing a model of adjustment with an extra state variable, which I interpret as housing, I show that the distribution of housing allows the model to converge to a unique spatial equilibrium. This explains the observed persistence and robustness of economic agglomerations in the data.

Chapter 2 is a theory of task assignment in the production of final goods and across countries. By allowing for tasks to differ in their suitability of being used in the production of multiple goods, my model endogenizes the allocation of tasks in the production of goods that use them. The resulting equilibrium task allocation defines the pattern of off-shoring. Tasks that are used in only one good concentrate in the country with a specialization in production of that good. Tasks used in many goods are allocated across countries, with the more substitutable tasks located in the country with the larger overall output. Gains from off-shoring are derived from a better mix of allocation of tasks into goods as well as larger scale of production.

Finally in Chapter 3, I study how real exchange rate fluctuations determine the size and composition of the export sector. Using the methodology set out in Dixit and Pindyck (1994) in a heterogeneous firms model, I determine the set of trigger real exchange rates for entry and exit into exporting. My primary result of this chapter is that exchange rate uncertainty coupled with sunk cost of entry causes hysteresis in the number and productivity of exporting firms. I then extend the model to allow free entry of firms. This explains the stylized fact of the existence of non-exporting firms with higher productivity than some exporting firms.

Authors: Chow-Kambitsch, F

• Publication date: 2015
• DOI: 10.5287/ora-aowxr9xrj
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: Oxford University, UK
• Language: English
• Keywords: International trade; economic geography; economics
• Subjects: Industrial economics; Microeconomics; Economics; Macro and international economics