Globalization, rigidities and national specialization: a dynamic analysis
Giovanni Peri, 2002.
The paper extends the ‘dynamic’ economic geography technique to analyze the evolution of national specialization as trade costs decrease. As agglomeration economies arise, due to the decrease of trade costs, countries could benefit from specializing in one sector. Nevertheless, the sector of specialization, as well as the speed of relocation of factors towards this sector, depends crucially on the costs of relocating factors and on comparative advantages. Labor market rigidities and comparative advantages contribute to lock a country in its current specialization pattern slowing relocation of factors. The model is consistent with some stylized facts on specialization and labor market rigidities in OECD countries.