International Trade with Lumpy Countries

Abstract

This paper explores the implications for the pattern of international trade of various differences among regions within countries--what we call llumpiness. It is shown first that if factors of production are immobile among regions, and if they are sufficiently unevenly distributed across these regions, then the pattern of trade of the country as a whole may depart from what it would have been had factors been perfectly mobile. Thus lumpiness in the geographical distribution of factors can be a determinant of trade. Second, the regional distribution of factors is made endogenous by assuming instead that they are mobile, but that differences now exist among regions in the levels of amenities that either attract labor or assist production. We show that such differences in amenities can cause the endogenous distribution of factors to be sufficiently uneven so as to influence trade. Thus lumpiness of amenities can be a determinant of trade. Finally, we introduce nontraded goods, which turn out also to influence trade. Thus lumpiness in the provision of nontraded goods is a determinant of trade.