The footloose entrepreneur model with heterogeneous productivity firms

This paper develops a footloose entrepreneur model with heterogeneous productivity in a country. In differing from von Ehrlich and Seidel (2013), our model shows that raising the heterogeneity of firms does not always foster industrial agglomeration, because the elasticity of substitution of products plays a dispersion role in industrial spatial distribution. When the elasticity of substitution is high, raising the heterogeneity of firms will tend to form a spatial symmetric distribution. On the other hand, when the elasticity of substitution is low, raising the heterogeneity of firms will tend to form a core-periphery distribution.