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Monopolistic competition, trade, and endogenous spatial fluctuations

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  • Ottaviano, Gianmarco I. P.

Abstract

This paper investigates the possibility of endogenous fluctuations in the international distribution of economic activities in the presence of increasing returns, monopolistic competition, trade and convex adjustment costs without allowing for any local productive externalities. Using a two-country dynamic general equilibrium model, it derives necessary and sufficient conditions for the existence of self-reinforcing relocation processes. It shows that the occurrence of multiple equilibria and endogenous fluctuations is associated with a high degree of increasing returns to scale as well as low trade and adjustment costs. Under such circumstances relocation processes are driven by self-fulfilling expectations

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 31 (2001)
Issue (Month): 1 (February)
Pages: 51-77

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Handle: RePEc:eee:regeco:v:31:y:2001:i:1:p:51-77

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  1. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 21-49, February.
  2. Kiminiori Matsuyama, 1994. "Complementaries and Cumulative Processes In Models of Monopolistic Competition," Discussion Papers 1106, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  4. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
  5. Krugman, Paul & Venables, Anthony J., 1995. "Globalization and the Inequality of Nations," Working Paper Series 430, Research Institute of Industrial Economics.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. Tibor Scitovsky, 1954. "Two Concepts of External Economies," Journal of Political Economy, University of Chicago Press, vol. 62, pages 143.
  8. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October.
  9. Ottaviano, Gianmarco I. P., 1999. "Integration, geography and the burden of history," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 245-256, March.
  10. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers 2102, C.E.P.R. Discussion Papers.
  11. Paul Krugman, 1992. "A Dynamic Spatial Model," NBER Working Papers 4219, National Bureau of Economic Research, Inc.
  12. Fukao, Kyoji & Benabou, Roland, 1993. "History versus Expectations: A Comment," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 535-42, May.
  13. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
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