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Journal of Economic Geography Advance Access originally published online on March 16, 2009
Journal of Economic Geography 2009 9(6):869-887; doi:10.1093/jeg/lbp011
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Right arrow D72 - Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
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Right arrow R12 - Size and Spatial Distributions of Regional Economic Activity
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Location equilibrium with endogenous rent seeking

Magnus Wiberg*

*Department of Economics, Stockholm University, SE-106 91 Stockholm. email <mawi{at}ne.su.se; mwiberg{at}fas.harvard.edu>

JEL classifications: D72, F12, R12

This article analyzes the location of manufacturing activities when regional policy is determined by endogenous rent seeking. Once lobbying for government transfers to regions is included in an economic geography framework with size asymmetries, the standard prediction that the larger region becomes the core when trade barriers are reduced no longer holds. The establishment of manufacturing production in the economically smaller region is increasing in the level of regional integration once trade becomes freer than a certain threshold value. When free trade prevails, the relocation of industry takes place up to the point where there are as many firms operating in the South as in the North. Furthermore, lobbying slows down the agglomeration process, whereas the home market magnification effect [Krugman (1991, Journal of Political Economy, 99, 483–499)] becomes weaker.

Keywords: economic geography, regional policy, political economy, rent seeking
Date submitted: 6 January 2009     Date accepted: 2 February 2009


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