Skip to main content

Advertisement

SpringerLink
Log in

The spatial effects of trade openness: a survey

  • Original Paper
  • Published:
Review of World Economics Aims and scope Submit manuscript

Abstract

This paper surveys the literature on the implications of trade liberalisation for intra-national economic geographies. Three results stand out. First, neither urban systems models nor new economic geography models imply a robust prediction for the impact of trade openness on spatial concentration. Whether trade promotes concentration or dispersion depends on subtle modelling choices among which it is impossible to adjudicate a priori. Second, empirical evidence mirrors the theoretical indeterminacy: a majority of cross-country studies find no significant effect of openness on urban concentration or regional inequality. Third, the available models predict that, other things equal, regions with inherently less costly access to foreign markets, such as border or port regions, stand to reap the largest gains from trade liberalisation. This prediction is confirmed by the available evidence. Whether trade liberalisation raises or lowers regional inequality therefore depends on each country’s specific geography.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. This survey is of a qualitative nature, as a formal meta analysis would not yet be appropriate in view of the limited number and methodological heterogeneity of available empirical studies (see Tables 1, 2 in Sect. 3).

  2. Henderson (1987) does away with demand-side congestion and, by choosing a specific a functional form for the supply-side scale-economy term, arrives at the same results with regard to trade openness as Henderson (1982).

  3. Cities being perfectly specialised implies that city-level increasing returns can be thought of in this model as own-sector “localisation economies”.

  4. One difference to Henderson’s model is that Rauch (1991) assumes agglomeration externalities to arise on the demand side, through consumers deriving pleasure from interacting with each other while working or shopping in the city centre. As these externalities are not specific to individual sectors, they can be considered a form of urbanisation economies.

  5. On the differences between neoclassical urban systems models and NEG models, see Henderson (1996).

  6. Alonso Villar (2001) simulates the Krugman and Livas Elizondo (1996) model for a two-region home country and two symmetric one-region foreign countries (1 + 2 + 1) and obtains qualitatively the same result: trade liberalisation favours internal dispersion.

  7. There also exists an interval at intermediate levels of the external trade cost for which both dispersion and concentration are locally stable equilibria.

  8. Another interesting result in Behrens et al. (2007) is that the spatial allocation of mobile activities within a country is not affected by that same spatial allocation in the other country. In that sense, internal geographies are mutually independent. However, in that same model, one country’s internal geography matters for the other country’s welfare (through price effects). Moreover, in a closely related paper (Behrens et al. 2006), the same authors show that if international trade costs fall more than proportionally with trade volumes, internal economic geographies become interdependent.

  9. The former paper is based on the Pflüger (2004) variant of the NEG model, which can be solved analytically and features smooth changes in spatial configurations rather than the discrete “catastrophes” inherent in the Krugman (1991) model, while the latter considers the original Krugman (1991) framework. This difference in modelling approaches turns out to have no effect on the qualitative predictions.

  10. The key difference between the papers discussed in this section concerns assumptions on dispersion forces. However, other elements of the model can be manipulated as well. For instance, Mansori (2003) assumes that there are region-specific fixed costs to international trade. This implies an additional agglomeration force, since with increasing importance of external trade, the price of access to foreign markets become relatively more important, which favours concentration in a single region. This can be thought of as the endogenous formation of a port region. Mansori (2003) finds that this assumption too can reverse the Krugman and Livas Elizondo (1996) result.

  11. See Baldwin et al. (2003, chap. 2) for an discussion of this mechanism.

  12. In addition, these models are static in nature. As shown by Bertinelli and Black (2004), agglomerations that appear excessively large in a static sense may in fact be optimal dynamically, if growth is knowledge-driven and knowledge is generated in agglomerations.

  13. I consider only studies that use regression techniques to identify the spatial effects of openness.

  14. In a survey of the literature, Duranton (2008) nevertheless concludes that the empirical support for trade-based explanations of urban primacy remains weaker than evidence pointing towards political and institutional factors that shape primacy.

  15. Faber (2007) confirms that employment in export-oriented industries grew more strongly in Mexican border regions, but suggests that import-competing industries grew more strongly in interior regions. While this result turns out not to be robust to the timing of the trade variable, it does point towards trade liberalisation changing not only the spatial distribution of aggregate activity but also the sectoral composition of regions. Hanson (2001) furthermore documents how export-led growth of Mexican border towns promoted economic growth of adjacent US border towns, thus providing further evidence of the economic advantages enjoyed by border regions under trade liberalization.

  16. Consistent with Henderson and Kuncoro’s (1996) results, Sjöberg and Sjöholm (2004) calculate that Indonesian firms engaged in international trade are more spatially concentrated than non-trading firms, and that the spatial concentration of trading firms grew more strongly over the 1980–1996 period than that of non-trading firms.

  17. One conceivable reverse-causality story is that industries concentrated around the capital city were more successful in lobbying against tariff cuts. The fact that Volpe (2010) finds a different result for Brazil, where trade liberalisation in the 1990s appears to have been associated with a significant shift of industry towards the Argentine border, makes the findings for Argentina stand out even more.

  18. This effect does not seem to be confined to modern-day manufacturing trade. Atsumi (2011) reports how, subsequent to an abrupt opening to international trade by Japan in 1859, population shifted towards eastern Japan (with the new export gateway Tokyo) from western Japan (with the old capital Kyoto), and that this coincided with the west–east relocation of the main export industry (silk fabrics).

  19. An important caveat to this conclusion is that, with regional differences in dimensions other than market access, improved intra-national trade infrastructure can have a dampening effect on economic activity in the less productive regions (Martin and Rogers 1995).

References

  • Ades, A. F., & Glaeser, E. L. (1995). Trade and circuses: Explaining urban giants. Quarterly Journal of Economics, 110(1), 195–227.

    Article  Google Scholar 

  • Alonso Villar, O. (1999). Spatial distribution of production and international trade: A note. Regional Science and Urban Economics, 29(3), 371–380.

    Article  Google Scholar 

  • Alonso Villar, O. (2001). Large metropolises in the third world: An explanation. Urban Studies, 38(8), 1359–1371.

    Article  Google Scholar 

  • Atsumi, T. (2011). Silk, regional rivalry, and the impact of the port openings in nineteenth century Japan. Journal of the Japanese and International Economies (forthcoming).

  • Baldwin, R. E., Forslid, R., Martin, P., Ottaviano, G. I. P., & Robert-Nicoud, F. (2003). Economic geography and public policy. Princeton: Princeton University Press.

  • Baldwin, R. E., & Wyplosz, C. (2006). The economics of European integration (2nd edn.). London: McGraw-Hill.

    Google Scholar 

  • Behrens, K., Gaigné, C., Ottaviano, G. I. P., & Thisse, J. F. (2006). How density economies in international transportation link the internal geography of trading partners. Journal of Urban Economics, 60(2), 248–263.

    Article  Google Scholar 

  • Behrens, K., Gaigné, C., Ottaviano, G. I. P., & Thisse, J. F. (2007). Countries, regions and trade: On the welfare impacts of economic integration. European Economic Review, 51(5), 1277–1301.

    Article  Google Scholar 

  • Bertinelli, L., & Black, D. (2004). Urbanization and growth. Journal of Urban Economics, 56, 80–96.

    Article  Google Scholar 

  • Brülhart, M. (2001). Evolving geographical concentration of European manufacturing industries. Weltwirtschaftliches Archiv/Review of World Economics, 137(2), 215–243.

    Article  Google Scholar 

  • Brülhart, M. (2006). The fading attraction of central regions: An empirical note on core-periphery gradients in Western Europe. Spatial Economic Analysis, 1(2), 227–235.

    Article  Google Scholar 

  • Brülhart, M., Carrère, C., & Trionfetti, F. (2010). How wages and employment adjust to trade liberalisation: Quasi-experimental evidence from Austria. Mimeo, University of Lausanne.

  • Brülhart, M., Crozet, M., & Koenig, P. (2004). Enlargement and the EU periphery: The impact of changing market potential. World Economy, 27(6), 853–875.

    Article  Google Scholar 

  • Brülhart, M., & Koenig, P. (2006). New economic geography meets COMECON: Regional wages and industry location in Central Europe. Economics of Transition, 14(2), 245–267.

    Article  Google Scholar 

  • Brülhart, M., & Sbergami, F. (2008). Agglomeration and growth: Empirical evidence. Journal of Urban Economics, 65(1), 48–63.

    Article  Google Scholar 

  • Brülhart, M., & Traeger, R. (2005). An account of geographic concentration patterns in Europe. Regional Science and Urban Economics, 35(6), 597–624.

    Article  Google Scholar 

  • Chiquiar, D. (2005). Why Mexico’s regional income convergence broke down. Journal of Development Economics, 77(1), 257–275.

    Article  Google Scholar 

  • Chiquiar, D. (2008). Globalization, regional wage differentials and the Stolper–Samuelson theorem: Evidence from Mexico. Journal of International Economics, 74(1), 70–93.

    Article  Google Scholar 

  • Crozet, M., & Koenig, P. (2004). EU enlargement and the internal geography of countries. Journal of Comparative Economics, 32(2), 265–278.

    Article  Google Scholar 

  • Duranton, G. (2008). From cities to productivity and growth in developing countries. Canadian Journal of Economics, 41(3), 689–736.

    Article  Google Scholar 

  • Egger, P., Huber, P., & Pfaffermayr, M. (2005). A note on export openness and regional wage disparity in Central and Eastern Europe. Annals of Regional Science, 39(1), 63–71.

    Article  Google Scholar 

  • Faber, B. (2007). Towards the spatial patterns of sectoral adjustments to trade liberalisation: The case of NAFTA in Mexico. Growth and Change, 38(4), 567–594.

    Article  Google Scholar 

  • Fujita, M., Krugman, P., & Venables, A. (1999). The spatial economy: Cities, regions and international trade. Cambridge, MA: MIT Press.

    Google Scholar 

  • Gonzalez Rivas, M. (2007). The effects of trade openness on regional inequality in Mexico. Annals of Regional Science, 41(3), 545–561.

    Article  Google Scholar 

  • Haaparanta, P. (1998). Regional concentration, trade, and welfare. Regional Science and Urban Economics, 28(4), 445–463.

    Article  Google Scholar 

  • Hanson, G. H. (1997). Increasing returns, trade and the regional structure of wages. Economic Journal, 107(440), 113–133.

    Article  Google Scholar 

  • Hanson, G. H. (1998). Regional adjustment to trade liberalisation. Regional Science and Urban Economics, 28(4), 419–444.

    Article  Google Scholar 

  • Hanson, G. H. (2001). US-Mexico integration and regional economies: Evidence from border-city pairs. Journal of Urban Economics, 50(2), 259–287.

    Article  Google Scholar 

  • Henderson, J. V. (1974). The sizes and types of cities. American Economic Review, 64(4), 640–656.

    Google Scholar 

  • Henderson, J. V. (1982). Systems of cities in closed and open economies. Regional Science and Urban Economics, 12(3), 325–350.

    Article  Google Scholar 

  • Henderson, J. V. (1987). General equilibrium modeling of systems of cities. In E. S. Mills (Ed.), Handbook of regional and urban economics (Vol. 2, pp. 927–956). Amsterdam: Elsevier.

    Google Scholar 

  • Henderson, J. V. (1996). Ways to think about urban concentration: Neoclassical urban systems versus the new economic geography. International Regional Science Review, 19(1–2), 31–36.

    Google Scholar 

  • Henderson, J. V. (2000). The effects of urban concentration on economic growth. (NBER Working Paper #7503).

  • Henderson, J. V. (2003). The urbanization process and economic growth: The so-what question. Journal of Economic Growth, 8(1), 47–71.

    Article  Google Scholar 

  • Henderson, J. V., & Kuncoro, A. (1996). Industrial centralization in Indonesia. World Bank Economic Review, 10(3), 513–540.

    Google Scholar 

  • Junius, K. (1999). Primacy and economic development: Bell shaped or parallel growth of cities? Journal of Economic Development, 24(1), 1–22.

    Google Scholar 

  • Kanbur, R., & Zhang, X. (2005). Fifty years of regional inequality in China: A journey through central planning, reform and openness. Review of Development Economics, 9(1), 87–106.

    Article  Google Scholar 

  • Krugman, P. (1991). Increasing returns and economic geography. Journal of Political Economy, 99(3), 483–499.

    Article  Google Scholar 

  • Krugman, P., & Livas Elizondo, R. (1996). Trade policy and the third world metropolis. Journal of Development Economics, 49(1), 137–150.

    Article  Google Scholar 

  • Mansori, K. S. (2003). The geographic effects of trade liberalization with increasing returns in transportation. Journal of Regional Science, 43(2), 249–268.

    Article  Google Scholar 

  • Martin, P., & Rogers, C. A. (1995). Industrial location and public infrastructure. Journal of International Economics, 39(3–4), 335–351.

    Article  Google Scholar 

  • Melchior, A. (2008a). European integration and domestic regions: A numerical simulation analysis. (Working Paper). Warsaw: CASE Center for Economic and Social Research.

  • Melchior, A. (2008b). Regional inequality and convergence in Europe, 1995–2005. (Working Paper). Warsaw: CASE Center for Economic and Social Research.

  • Melchior, A. (2009). East–West integration and the economic geography of Europe. (Working Paper). Warsaw: CASE Center for Economic and Social Research.

  • Monfort, P., & Nicolini, R. (2000). Regional convergence and international integration. Journal of Urban Economics, 48(2), 286–306.

    Article  Google Scholar 

  • Monfort, P., & van Ypersele, T. (2003). Integration, regional agglomeration and international trade. (CEPR Discussion Paper #3752).

  • Moomaw, R. L., & Alwosabi, M. A. (2004). An empirical analysis of competing explanations of urban primacy evidence from Asia and the Americas. Annals of Regional Science, 38(1), 149–171.

    Article  Google Scholar 

  • Moomaw, R. L., & Shatter, A. M. (1996). Urbanization and economic development: A bias toward large cities? Journal of Urban Economics, 40(1), 13–37.

    Article  Google Scholar 

  • Nitsch, V. (2006). Trade openness and urban concentration: New evidence. Journal of Economic Integration, 21(2), 340–362.

    Google Scholar 

  • Ottaviano, G. I. P., Tabuchi, T., & Thisse, J.-F. (2002). Agglomeration and trade revisited. International Economic Review, 43(2), 409–436.

    Article  Google Scholar 

  • Paluzie, E. (2001). Trade policies and regional inequalities. Papers in Regional Science, 80(1), 67–85.

    Article  Google Scholar 

  • Pernia, E. M., & Quising, P. F. (2003). Trade openness and regional development in a developing country. Annals of Regional Science, 37(3), 391–406.

    Article  Google Scholar 

  • Pflüger, M. (2004). A simple, analytically solvable, Chamberlinian agglomeration model. Regional Science and Urban Economics, 34(5), 565–573.

    Article  Google Scholar 

  • Ramcharan, R. (2009). Why an economic core: Domestic transport costs. Journal of Economic Geography, 9(4), 559–581.

    Article  Google Scholar 

  • Rauch, J. E. (1989). Increasing returns to scale and the pattern of trade. Journal of International Economics, 26(3–4), 359–369.

    Article  Google Scholar 

  • Rauch, J. E. (1991). Comparative advantage, geographic advantage and the volume of trade. Economic Journal, 101(408), 1230–1244.

    Article  Google Scholar 

  • Redding, S., & Sturm, D. (2008). The costs of remoteness: Evidence from German division and reunification. American Economic Review, 98(5), 1766–1797.

    Article  Google Scholar 

  • Rodriguez-Pose, A., & Gill, N. (2006). How does trade affect regional disparities? World Development, 34(7), 1201–1222.

    Article  Google Scholar 

  • Rodriguez-Pose, A., & Sanchez-Reaza, J. (2005). Economic polarization through trade: Trade liberalization and regional growth in Mexico. In A. J. Venables & R. Kanbur (Eds.), Spatial inequality and development. Oxford, UK: Oxford University Press.

    Google Scholar 

  • Rosen, K. T., & Resnick, M. (1980). The size distribution of cities: An examination of the Pareto law of primacy. Journal of Urban Economics, 8(2), 165–186.

    Article  Google Scholar 

  • Sanguinetti, P., & Volpe Martincus, C. (2009). Tariffs and manufacturing location in Argentina. Regional Science and Urban Economics, 39(2), 155–167.

    Article  Google Scholar 

  • Sjöberg, Ö., & Sjöholm, F. (2004). Trade liberalization and the geography of production: Agglomeration, concentration, and dispersal in Indonesia’s manufacturing industry. Economic Geography, 80(3), 287–310.

    Article  Google Scholar 

  • Volpe Martincus, C. (2010). Spatial effects of trade policy: Evidence from Brazil. Journal of Regional Science, 50(2), 541–569.

    Article  Google Scholar 

  • World Bank. (2008). World development report 2009: Reshaping economic geography. Washington, DC.

Download references

Acknowledgments

I thank participants at the seventh annual ELSNIT conference at the Kiel Institute as well as an anonymous referee for helpful comments, and the Inter-American Development Bank for commissioning this research. I am also grateful for financial support to the Swiss National Science Foundation (grant PDFMP1-123133 and NCCR “Trade Regulation”) and to the EU’s Sixth Framework Programme (“Micro-Dyn” project).

Author information

Authors and Affiliations

  1. Département d’économétrie et économie politique (DEEP), École des HEC, Université de Lausanne, 1015, Lausanne, Switzerland

    Marius Brülhart

  2. Centre for Economic Policy Research (CEPR), London, UK

    Marius Brülhart

Authors
  1. Marius Brülhart
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Marius Brülhart.

About this article

Cite this article

Brülhart, M. The spatial effects of trade openness: a survey. Rev World Econ 147, 59–83 (2011). https://doi.org/10.1007/s10290-010-0083-5

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10290-010-0083-5

Keywords

JEL Classification

Search

Navigation