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Monopolistic Competition, Trade and Endogenous Spatial Fluctuations

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  • Gianmarco Ottaviano

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

Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 240.

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Date of creation: Jan 1996
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Handle: RePEc:bol:bodewp:240

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References

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  1. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
  2. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  3. Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 33(2), pages 701-729, June.
  4. Tibor Scitovsky, 1954. "Two Concepts of External Economies," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 62, pages 143.
  5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 483-99, June.
  6. Ottaviano, Gianmarco I. P., 1999. "Integration, geography and the burden of history," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 29(2), pages 245-256, March.
  7. Baldwin, Richard E., 2001. "Core-periphery model with forward-looking expectations," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 31(1), pages 21-49, February.
  8. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 651-67, May.
  9. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 857-80, November.
  10. Paul Krugman, 1992. "A Dynamic Spatial Model," NBER Working Papers 4219, National Bureau of Economic Research, Inc.
  11. Forslid, Rikard, 1999. "Agglomeration with Human and Physical Capital: an Analytically Solvable Case," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2102, C.E.P.R. Discussion Papers.
  12. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(5), pages 775-91, October.
  13. repec:fth:iniesr:430 is not listed on IDEAS
  14. Fukao, Kyoji & Benabou, Roland, 1993. "History versus Expectations: A Comment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(2), pages 535-42, May.
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