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ECONOMIC GEOGRAPHY OF FIRMS AND SKILLED LABOR

Authors


  • The author is very grateful to Masahisa Fujita, Tomoya Mori, Kensuke Teshima, Dao-Zhi Zeng, and anonymous referees as well as Mark Partridge for their useful comments. The financial support from Japan Society for the Promotion of Science through Grant-in-Aid for Science Research 20730183 is acknowledged.

Abstract

ABSTRACT This paper investigates the relationship between firm location and skilled-labor location. While existing new economic geography (NEG) models could not explicitly analyze the relationship due to their assumptions, I construct a new NEG-type model allowing for different location dynamics of firms and skilled labor for this objective. The main results are as follows. First, a relatively large pool of skilled labor attracts firms when trade costs are small, while it might repel firms when trade costs are sufficiently large. Second, assuming that skilled workers are mobile between regions, the model shows that skilled workers agglomerate faster than firms with decreasing trade costs. Third, the model supports the hypothesis that firms follow skilled labor rather than the reverse. These results are consistent to Indian and Chinese experiences, and some “creative-class” or “skilled-city” stories.

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