the quality of the match between job and worker, trade liberalization may lead to industrial agglomeration and inter …-industry trade. The agglomeration force is the improvement in the quality of matches when firms recruit from a bigger pool of labor …. The forces against agglomeration are the existence of trade costs and monopoly power in the labor market. We show that …

to industrial agglomeration and inter-regional trade. Labor heterogeneity gives local monopoly power to firms but also … the local market, giving rise to an agglomeration force which can offset the forces against, trade costs and the erosion … of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical …