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 de- termined. The implications of our generalization are quite relevant. In particular, we obtain the following novel results: 1) catastrophic agglom- eration may always take place, whatever the degree of market integration, provided that the traditional and the industrial goods are su¢ ciently good substitutes; 2) the regional rate of growth is a¤ected by the interregional allocation of economic activities even in the absence of localized spillovers, so that geography always matters for growth and 3) the regional rate of growth is a¤ected by the degree of market openness: in particular, depend- ing 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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Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number
200820.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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.
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