Firms’ spatial sorting and market access

Using a model with heterogeneous firms, that consists of a system of two integrated regions (a large core region and a small periphery region) and an external third region, I study the impact of external trade openness on firms' spatial sorting patterns within the system of the two regions. Applying the main theoretical findings of this model in the case of Brexit, I find that impaired access to and from the UK induces less manufacturing firms to relocate from the periphery to the core of the EU. Other findings show that as the external region becomes more important relative to the system of the two integrated regions (i.e. its productivity goes up or/and its market size goes up), the most efficient manufacturing firms find it profitable to leave the small periphery region and migrate to the large core region.