Which Firms are Left in the Periphery?- Spatial Sorting of Heterogeneous Firms with Scale Economies in Transportation

This paper introduces scale economies or density economies in transportation in a trade and geography model with heterogeneous \u85rms. This relatively small change to the standard model produces a new pattern of spatial sorting among \u85rms. Contrary to the existing literature, our model produces the result that \u85rms of intermediate productivity relocate to the large core region, whereas high and low productivity \u85rms remain in the periphery. Trade liberalisation leads to a gradual relocation to the core, with the most productive \u85rms remaining in the periphery. JEL Classi\u85cation: F12, F1