Geographic Change with Trade Based on Comparative Advantage

Abstract

This article describes a multimarket von Thünen model that concerns change in the internal economic geography of two countries once trade develops between them. Using the principle of comparative advantage, an initial allocation of four industries is established across each of the countries based on local variation in factor endowments, regional demand at several centers, and internal transport costs. Once trade begins, reallocation of production in the four industries in each country is modeled as the response to comparative factor endowments across the countries, trade costs, transport costs, and differences in demand. The model's results indicate that geography matters in trade both within and across countries. Proximity is especially important. Regions of the trading countries that are effectively neighbors are affected more by the introduction of trade than are regions that are peripheral in the true geographical sense. At the national scale, results suggest that a high tariff in one country can raise aggregate production and distribution costs in another country. Key Words: von Thünen model, comparative advantage, international trade.It is convenient, therefore, to think of the world as consisting of a number of large regions, each of which consists of smaller regions (sub-regions), the latter containing a great number of very small districts.- (Ohlin, 1957, 232)

The Development of Trade Blocs in an Era of Globalisation

“…Andresen (2009a) finds that, over time, trade clusters have become more regionally focused due to an increasing importance o f distance. Hanink and Cromley (2005) report similar results for the importance o f proximity to increasing trade intensification. McCann (2011) ascribes a significant increase in distance costs to 1989 onwards, "when institutional and technological aspects o f trade costs were falling most dramatically" (page 315), reflecting an increasingly regional orientation o f economic clusters.…”

Trade Specialization and Reciprocal Trading Relationships in Canada and the United States, 1989 and 2001

“…Behrens (2006) shows that decreases in both or either of these trade costs (they are normally treated as a single impediment to international trade) lead to the agglomeration of production in the larger economy. Hanink and Cromley (2005) develop a classical model of international trade with regionally based factor endowments and comparative advantage. Using simulation methods, they find support for Melvin's (1985) analytical result that high tariffs generate increased interregional trade within a country.…”

Geographies of International Trade: Theory, Borders, and Regions

“…At least to some degree, this challenge has been met recently by a pair of geographers. In what is probably the most important theoretical work on the geography of international trade in recent years, Hanink and Cromley (2005) develop a classical model of international trade with regionally-based factor endowments and comparative advantage. Using simulation methods because of the complexity of such a model, they find that high international trade tariffs generate increased interregional trade.…”