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Optimal Agglomerations in Dynamic Economics

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  • William Brock
  • Anastasios Xepapadeas
  • Athanasios Yannacopoulos
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    Abstract

    We study rational expectations equilibrium problems and social optimum problems in in nite horizon spatial economies in the context of a Ramsey type capital accumulation problem with geographical spillovers. We identify sufficient local and global conditions for the emergence (or not) of optimal agglomeration, using techniques from monotone operator theory and spectral theory in in nite dimensional Hilbert spaces. We show that agglomerations may emerge, with any type of returns to scale (increasing or decreasing) and with the marginal productivity of private capital increasing or decreasing with respect to the spatial externality. This is a fairly general result indicating the importance of the network structure of the spatial externality relative to the properties of the aggregate production function. Our analytical methods can be used to systematically study optimal potential agglomeration and clustering in dynamic economics.

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    File URL: http://wpa.deos.aueb.gr/docs/Optimal.Agglomerations.in.Dynamic.Economics.pdf
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    Bibliographic Info

    Paper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1403.

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    Date of creation: 01 Apr 2014
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    Handle: RePEc:aue:wpaper:1403

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    Related research

    Keywords: Agglomeration; spatial spillovers; spillover induced instability; rational expectations equilibrium; social optimum; monotone operators.;

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    1. Raouf, BOUCEKKINE & Carmen, CAMACHO & Benteng, ZOU, 2006. "Bridging the Gap between Growth Theory and the New Economic Geography : The Spatial Ramsey Model," Discussion Papers (ECON - Département des Sciences Economiques) 2006038, Université catholique de Louvain, Département des Sciences Economiques.
    2. Raouf BOUCEKKINE & Carmen CAMACHO & Giorgio FABBRI, 2010. "Spatial dynamics and convergence: the spatial AK model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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    5. Nocco, Antonella, 2005. "The rise and fall of regional inequalities with technological differences and knowledge spillovers," Regional Science and Urban Economics, Elsevier, vol. 35(5), pages 542-569, September.
    6. Brito, Paulo, 2011. "Global endogenous growth and distributional dynamics," MPRA Paper 41653, University Library of Munich, Germany.
    7. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
    8. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
    9. Scheinkman, Jose Alexandre, 1978. "Stability of Separable Hamiltonians and Investment Theory," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 559-70, October.
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    11. Carmen Camacho & Benteng Zou & Maya Briani, 2005. "On the dynamics of capital accumulation across space," Working Papers 376, Bielefeld University, Center for Mathematical Economics.
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