International and Intra-National Trade: A Continuum Approach

We build up a Ricardian trade model with multiple regions within a nation and examine how international trade determines interregional patterns of production and specialization. We show that the degree of interregional concentration of economic activities moves in different directions in two trading nations. The role of “absolute advantage” becomes crucial in dictating the course of income disparity across regions. We discuss cases with varying degrees of labour mobility and reconfirm the result on post-trade interregional concentration and dispersion. Later we explore the impact of “scale factor” in this model and show how principle of comparative advantage and economies of scale interact to determine the pattern of specialization and volume of trade.