The proposed research will analyze the relationship between firm location decisions, geographic concentration, and trade patterns by developing several related theoretical models and empirically testing the results. The foundations will consist of an imperfect competition model of firm location, in which learning spillovers from direct contact with suppliers and customers provide an impetus for concentration. The model will be extended to analyze the evolution of firm location and trade patterns over the product life cycle. A second extension will consider the effect of government intervention on industry location. The research will conclude with empirical tests of the relationship posited by the model between comparative advantage and concentration of related industries and consumer density, as against competing hypotheses emphasizing factor supplies and transport costs. The Research Planning Grant would be used to review related literature, to develop a working paper version of the model illustrating the core relationships, to assess the evidence on relevant government policies, and to identify and tap data sources for the empirical component. It would lead to the submission of a full research proposal to the NSF at the end of one year.
