In this paper, we develop an economic geography model in which firms sell product varieties with heterogeneous demands. We show that firms that sell products with higher demand choose to establish their plants in larger countries, which provide better access to the most frequently demanded and...

The fiscal decentralization impulse now sweeping the world often leads to partial decentralization, where subnational governments are funded by central transfers, rather than leading to full local autonomy. Despite the practical important of this arrangement, the literature contains no economic...