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Agglomeration and economic development: import substitution vs. trade liberalisation

By D Puga and Tony Venables


This paper analyses a model of economic development in which international differences in industrial structure and income are caused by the agglomeration of industry in a subset of countries. Economic development may not be a gradual process of convergence by all countries, but instead involve countries moving sequentially from the group of poor countries to the group of rich countries. The role of trade policy in promoting industrialisation is studied. While both import substitution and unilateral trade liberalisation may be ‘successful’ in attracting industry, they attract different sectors and welfare levels are higher under trade liberalisation

Publisher: Wiley-Blackwell on behalf of the Royal Economic Society
Year: 1999
DOI identifier: 10.1111/1468-0297.00433
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Provided by: LSE Research Online
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