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Formation of Hub Cities: Transportation Cost Advantage and Population Agglomeration

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  • Hideo Konishi

    ()
    (Boston College)

Abstract

Many cities are located on rivers or coasts. This paper argues that such cities developed as transportation hubs or markets for interregional trade, since these locations provide better access (lower marginal transportation costs) to other regions. Local products are collected at such hubs, and interregional trade then takes place among these transportation hubs. As the volume of trade between hubs increases, more workers are needed in order to meet labor demand for shipping and handling commodities, resulting in population agglomeration at such hubs. This paper constructs a simple three location-identical consumer model, in which transportation hub and population agglomeration emerge endogenously. In contrast with much of the literature on city formation, we introduce no economies of scale into the model. Markets are assumed to be perfectly competitive and complete. Since prices are determined in equilibrium, transportation costs and routes are simultaneously determined in the system. Population agglomeration occurs solely because of location-specific production technologies (which generates gains from trade) and the differences in transportation technologies among locations (which determines the transportation routes). It is shown that a hub city emerges when transportation technologies are heterogeneous enough.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 448.

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Length: 28 pages
Date of creation: 01 Dec 1999
Date of revision:
Publication status: published, Journal of Urban Economics 48, 1-28 (2000)
Handle: RePEc:boc:bocoec:448

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Keywords: hub city; spatial general equilibrium; labor demand in transportation sector; no scale economies; perfect competition;

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References

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  1. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  2. Abdel-Rahman, H. M., 1988. "Product differentiation, monopolistic competition and city size," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 69-86, February.
  3. Wang, P., 1993. "Agglomeration in a Linear City with Heterogeneous Households," Papers 9-91-10, Pennsylvania State - Department of Economics.
  4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  5. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  6. Fujita, Masahisa & Mori, Tomoya, 1996. "The role of ports in the making of major cities: Self-agglomeration and hub-effect," Journal of Development Economics, Elsevier, vol. 49(1), pages 93-120, April.
  7. Thomas J. Holmes, 1996. "How industries migrate when agglomeration economies are important," Staff Report 219, Federal Reserve Bank of Minneapolis.
  8. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September.
  9. Berliant, Marcus & Wang, Ping, 1993. "Endogenous formation of a city without agglomerative externalities or market imperfections : Marketplaces in a regional economy," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 121-144, March.
  10. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1126-52, December.
    • Edward L. Glaeser & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1991. "Growth in Cities," NBER Working Papers 3787, National Bureau of Economic Research, Inc.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
  11. Hendricks, Ken & Piccione, Michele & Tan, Guofu, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 83-99, January.
  12. Marcus Berliant & Hideo Konishi, 2000. "The Endogenous Formation of a City: Population Agglomeration and Marketplaces in a Location-Specific Production Economy," Boston College Working Papers in Economics 451, Boston College Department of Economics.
  13. Fujita, Masahisa & Krugman, Paul & Mori, Tomoya, 1999. "On the evolution of hierarchical urban systems1," European Economic Review, Elsevier, vol. 43(2), pages 209-251, February.
  14. Schweizer, Urs & Varaiya, Pravin & Hartwick, John, 1976. "General equilibrium and location theory," Journal of Urban Economics, Elsevier, vol. 3(3), pages 285-303, July.
  15. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  16. Bryan Ellickson & William Zame, 2005. "A competitive model of economic geography," Economic Theory, Springer, vol. 25(1), pages 89-103, 01.
  17. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, December.
  18. Konishi, Hideo, 1996. "Voting with Ballots and Feet: Existence of Equilibrium in a Local Public Good Economy," Journal of Economic Theory, Elsevier, vol. 68(2), pages 480-509, February.
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Citations

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Cited by:
  1. Sukkoo Kim, 2002. "The Reconstruction of the American Urban Landscape in the Twentieth Century," NBER Working Papers 8857, National Bureau of Economic Research, Inc.
  2. Cuberes, David, 2008. "A Model of Sequential City Growth," MPRA Paper 8431, University Library of Munich, Germany.
  3. Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
  4. Akio Kawasaki, 2012. "Hub location with scheduling effects in a monopoly airline market," The Annals of Regional Science, Springer, vol. 49(3), pages 805-819, December.
  5. Munetomo Ando & Daisuke Oyama, 2002. "A model of a spatial economy with trading posts," Economics Bulletin, AccessEcon, vol. 18(1), pages 1-11.
  6. Daniel P. McMillen, 2003. "Employment subcenters in Chicago: past, present, and future," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 2-14.
  7. McMillen, Daniel P. & Smith, Stefani C., 2003. "The number of subcenters in large urban areas," Journal of Urban Economics, Elsevier, vol. 53(3), pages 321-338, May.
  8. Cuberes, David, 2007. "A Model of Sequential City Growth," MPRA Paper 2172, University Library of Munich, Germany.
  9. repec:ebl:ecbull:v:18:y:2002:i:1:p:1-11 is not listed on IDEAS

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