The Impact of Exogenous Asymmetry on Trade and Agglomeration in Core-Periphery Model

Abstract

The paper studies the Krugman's CP model in the weakly explored case of asymmetric regions in two settings: international trade and agglomeration processes. First setting implies that the industrial labor is immobile, while second one consider mobile industrial labor and long-run equilibria. Analytical study of both settings requires application of advanced mathematical analysis, e.g. implicit function theory. For international trade we find how equilibrium prices, production, consumption, wages and welfare for all population groups respond to shifts in all exogenous parameters: characteristics of utility function, transportation costs and degree of asymmetry in initial labor endowment. As for agglomeration process, it was found that the asymmetry in the population distribution simplifies pattern of agglomeration, making the direction of migration more definite, so the well-known ambiguity of final destination may disappear under sufficiently large extent of asymmetry. From political point of view, it means that under some conditions, openness of international trade may be harmful to immobile population of the smaller country.