This paper uses a two country trade and geography model of monopolistic competition to study the effects of wage policies and social policies on the location of industry. It is first shown that a union wage push in one of two otherwise identical countries induces a relocation of firms which...

The robust empirical finding that exporting firms are systematically different from firms that merely serve domestic consumers has inspired the development of a new brand of trade theory, the theory of heterogeneous firms and trade. The establishment of a canonical model due to Melitz (2003) has...

This paper sets up a two country monopolistic competition model with intra-industry trade to study the effects of an exogenous differential in wage and social policies on the location of industry. Two model scenarios are considered. In the traditional one with physical capital, such a...

We analyze tax competition between two countries of unequal size trying to attract a foreign-owned monopolist. When regional governments have only a lump-sum profit tax (subsidy) at their disposal, but face exogenous and identical transport costs for imports, then both countries will always...

Entrepreneurs who decide to start a business are faced with different levels of effective entry costs in different countries. These costs are heavily influenced by economic policy through entry regulation and subsidies. In this paper we present a two-country general equilibrium model with...

Entrepreneurs who decide to enter an industry are faced with different levels of effective entry costs in different countries. These costs are heavily influenced by economic policy. What is not well understood is how international trade affects the government incentive to impact on entry costs,...

This paper explores the role of country asymmetries for trade and industrial policies with heterogeneous firms. Our analysis delivers a number of novel results. First, trade policies, infrastructure policies and industrial policies which improve the business conditions in one country have...

This paper shows that subsidy competition may be efficiency enhancing. We model a subsidy game among two asymmetric regions in a new trade model, where capital can freely move among regions, but capital rewards are repatriated. We study subsidy competition, starting from an equilibrium where the...

The risk of default that business firms face is very significant and differs widely across countries. This paper explores the links between countries' business conditions and international trade embedment and the default risk at the country level from a theoretical point of view. Our main...

This paper studies the social desirability of agglomeration and the efficiency arguments for policy intervention in a simple, analytically solvable ?new economic geography? model with two trade integrating regions. The location pattern emerging as market equilibrium is ?bubbleshaped?, i.e. it...