Start-Up Entry Costs, Domestic Frictions and Regional Disparity in an Open Economy

Type:
SCID Working Paper 428

Publisher:
Guohua Peng

Publisher:
SCID

Author(s):

Published:
11/19/14

Abstract:
This paper examines how start-up entry costs a ect regional income disparity by extending the Melitz (2003) model to incorporate both interregional and international trade. Our main insight is that gains from trade interact with interregional trade costs and start-up entry cost di erentials. Comparing with an autarky economy, regional disparity in an open economy resulting from start-up entry cost di erentials widens further if interregional trade costs are low, and shrinks when they are high. Moreover, regional disparity could follow an inverted-U shape when the home country increases in international trade exposure.

By:
Guohua Peng

Full Text: