Country size, technology and manufacturing location∗

Country size, technology and trade costs jointly affect the location of manufacturing activity. In this paper, the combined effects of country size and technology differences on manufacturing location are examined in a simple New Economic Geography model. The specification yields a closed-form, analytic relationship between measures of relative productivity, country size and trade costs. The patterns of agglomeration are consistent with recent empirical evidence. Market and supplier access favor manufacturing agglomeration in large countries for high to intermediate trade costs. High productivity countries, however small, are favored for low trade costs. The model’s tractability facilitates policy and welfare analysis. ∗Acknowledgements: I am thankful to Nuno Limao, Tim Moore, Gianmarco Ottaviano, John Rust and workshop participants at Maryland for comments and suggestions on earlier drafts.