Footloose Capital, Market Access and the Geography of Regional State Aid

Centro Studi Luca d'Agliano, Queen Elizabeth House Developemt Studies Working Paper No. 155

26 Pages Posted: 16 Jan 2002

See all articles by Gianmarco I.P. Ottaviano

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Date Written: November 2001

Abstract

The global welfare implications of home market effects in trade models with imperfect competition are little understood. This paper proposes a simple model in which such implications can be easily analyzed. It shows an overall tendency of imperfectly competitive sectors to inefficiently cluster in locations that offer market access advantages. The more so the stronger the market power of firms as well as the intensity of increasing returns to scale and the lower the trade costs. As such features are likely to differ widely across sectors, those results provide theoretical ground to the promotion of regional policies that are also sector-specific and not only region-specific as currently in the EU.

Keywords: economic integration, specialization, home market effect, regional disparities, regional policy

JEL Classification: F12, L13, R13

Suggested Citation

Ottaviano, Gianmarco I.P., Footloose Capital, Market Access and the Geography of Regional State Aid (November 2001). Centro Studi Luca d'Agliano, Queen Elizabeth House Developemt Studies Working Paper No. 155, Available at SSRN: https://ssrn.com/abstract=296839 or http://dx.doi.org/10.2139/ssrn.296839

Gianmarco I.P. Ottaviano (Contact Author)

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

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