Will Decline in Foreign Trade Reshape Internal Economic Geography? Simulations in an Estimated Model of the Chinese Space-economy

Abstract

This study evaluates the role of decline in foreign trade in shaping China’s internal economic Geography. In a first step, we develop a multi-region multi-industry economic geography model under Cournot competition, of which we estimate the parameter values from real regional and industry data to obtain a predictable model. Next, we set some scenarios reflecting a decline in export to simulate the evolution of industrial spatial pattern. The simulations indicate the evident impact of decreasing export on the spatial distribution of industries; besides, the degree of influence varies across different industries. Moreover, the decline in export of one industry not only influences its own location, but also the location of the forward or backward-linked industries. However, the general spatial pattern, observed after policy reforms and trade liberalization, will not be reversed due to export recession in China.