The Effects of Regional Free Trade Agreements on Industrial Structure

An Extension of Krugman s Economic Geography Model (1991)

Extending Krugman`s (1991) economic geography model, this paper examines the stability of an industrial structure resulting from the production shifting-in effect of the formation of regional trade agreements. This paper claims that nonhigher external trade costs against non-member countries may be needed in order to secure the divergence of industries into the area of a regional trade agreement.