2011 Volume 67 Issue 1 Pages 21-38
In this paper, a two countries model is formulated to investigate the global production-trade patters emerged by the location behaviors of multi-national enterprises. Two countries are characterized by heterogeneous labor productivities. The multi-national enterprises, heterogeneous in productivities, are supposed to provide the differentiated commodities in the monopolistically competitive global market. The enterprises purchase differentiated knowledge at the fixed cost from the international research organization. They determine production locations in the global economy. The comparative static analysis is carried out to investigate the impacts of global infrastructure arrangement, associated with the decrease of transportation costs, upon the optimal production-trade patterns in the economy.