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Journal of Economic Geography Advance Access published online on June 22, 2005
Journal of Economic Geography, doi:10.1093/jeg/lbh075
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© The Author (2005). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oupjournals.org
Received January 29, 2004
Accepted April 18, 2005

Article

The effects of transport costs revisited

Olga Alonso-Villar 1*

1 Universidade de Vigo; Departamento de Economía Aplicada; Campus Lagoas-Marcosende s/n; 36310 Vigo; Spain

* To whom correspondence should be addressed.
Olga Alonso-Villar, E-mail: ovillar{at}uvigo.es


  Abstract

The aim of this paper is to study the location decisions of upstream and downstream industries when transport costs in each sector are analysed separately. By using a new economic geography model built on Venables (1996), it will be shown that the effects of cost reductions in transporting final goods are different from those in intermediate goods. Our analysis suggests that regional convergence is more the consequence of improvements in transportation between upstream and downstream firms than those between firms and consumers. This will help us to better understand the forces driving these kinds of models while giving an additional explanation to the differences between Krugman's (1991) results and those of Venables (1996).

Keywords: location of firms; monopolistic competition; input-output linkages; transport costs.
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