Economic geography and comparative advantage: Agglomeration versus specialization

This paper investigates the relationship between agglomeration and specialization, and the role of comparative versus absolute advantage. A two-country three-sector model is developed, encompassing a Ricardian comparative advantage, increasing returns, prod-uct di⁄erentiation, monopolistic competition, and trade costs. Closed-form solutions are derived for the factor immobility case, while factor mobility is analyzed via comparative statics and simulations. Several interesting results arise. Economic integration may reduce or even reverse the agglomeration pattern. Agglomeration in one country reduces its specialization within the IRS industry. An increases in comparative advantage is not necessarily associated with an increase in specialization. ( 1999 Elsevier Science B.V. All rights reserved