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Agglomeration And Growth With Endogenous Expenditure Shares

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  • Fabio Cerina
  • Francesco Mureddu

Abstract

We develop a New Economic Geography and Growth model which, by using a CES utility function in the second-stage optimization problem, allows for expenditure shares in industrial goods to be endogenously determined. The implications of our generalization are quite relevant. In particular, we obtain the following novel results - 1) two additional non-symmetric interior steady states emerge for some intermediate values of trade costs. These steady-states are stable if the industrial and the traditional goods are either good or very poor substitutes, while they are unstable for intermediate (yet lower than one) values of the intersectoral elasticity of substitution. In the latter case, the model displays three interior steady states - the symmetric and the core-periphery allocations - which are stable at the same time; 2) agglomeration processes may always take place, whatever the degree of market integration, provided that the traditional and the industrial goods are sufficiently good substitutes; 3) the regional rate of growth is affected by the interregional allocation of economic activities even in the absence of localized spillovers, so that geography always matters for growth and 4) the regional rate of growth is affected by the degree of market openness - in particular, depending on whether the traditional and the industrial goods are good or poor substitutes, economic integration may be respectively growth-enhancing or growth-detrimental.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Regional Science.

Volume (Year): 52 (2012)
Issue (Month): 2 (05)
Pages: 324-360

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Handle: RePEc:bla:jregsc:v:52:y:2012:i:2:p:324-360

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  1. Richard E. Baldwin & Philippe Martin & Gianmarco I. P. Ottaviano, 1998. "Global Income Divergence, Trade and Industrializatiion: The Geography of Growth Take-Offs," NBER Working Papers 6458, National Bureau of Economic Research, Inc.
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  4. Richard Baldwin & Toshihiro Okubo, 2005. "Heterogeneous Firms, Agglomeration and Economic Geography: Spatial Selection and Sorting," NBER Working Papers 11650, National Bureau of Economic Research, Inc.
  5. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
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  8. Baldwin, Richard E. & Martin, Philippe, 2004. "Agglomeration and regional growth," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 60, pages 2671-2711 Elsevier.
  9. Baldwin, Richard E. & Forslid, Rikard, 1999. "Incremental trade policy and endogenous growth:: A q-theory approach," Journal of Economic Dynamics and Control, Elsevier, vol. 23(5-6), pages 797-822, April.
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  13. Martin, Philippe & Ottaviano, Gianmarco Ireo Paolo, 1996. "Growing Locations: Industry Location in a Model of Endogenous Growth," CEPR Discussion Papers 1523, C.E.P.R. Discussion Papers.
  14. Baldwin, Richard & Forslid, Rikard, 1997. "The Core-Periphery Model and Endogenous Growth," CEPR Discussion Papers 1749, C.E.P.R. Discussion Papers.
  15. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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  17. Flora Bellone & Marie-Antoinette Maupertuis, 2003. "Economic Integration and Regional Income Inequalities: Competing Dynamics of Regional Wages and Innovative Capabilities," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 512-526, 08.
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Citations

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Cited by:
  1. F. Mureddu & F. Cerina, 2009. "Is Agglomeration really good for Growth? Global Efficiency, Interregional Equity and Uneven Growth," Working Paper CRENoS 200913, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. F. Cerina & F. Mureddu, 2011. "Structural Change and Growth in a NEG model," Working Paper CRENoS 201118, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  3. Colin Davis & Ken-ichi Hashimoto, 2014. "Industry Concentration, Knowledge Diffusion, and Economic Growth Without Scale Effects," Discussion Papers 1408, Graduate School of Economics, Kobe University.

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