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How density economies in international transportation link the internal geography of trading partners

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  • BEHRENS, Kristian
  • GAIGNE, Carl
  • OTTAVIANO, Gianmarco I.P.
  • THISSE, Jacques-François

Abstract

We present a two-country four-region model of new economic geography that partly endogenizes the level of trade costs. Contrary to the existing literature, we assume that international unit shipping costs depend on the volume of trade, due to the presence of density (dis)economies. We show that agglomeration (or dispersion) within a country may be induced by the geography of the other country through the channel of trade. Furthermore, whereas density economies may give rise to multiple equilibria and catastrophic agglomeration in both countries, density diseconomies lead to a smooth agglomeration process exhibiting a unique stable equilibrium.
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Suggested Citation

  • BEHRENS, Kristian & GAIGNE, Carl & OTTAVIANO, Gianmarco I.P. & THISSE, Jacques-François, 2006. "How density economies in international transportation link the internal geography of trading partners," LIDAM Reprints CORE 1870, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:1870
    DOI: 10.1016/j.jue.2006.02.007
    Note: In : Journal of Urban Economics, 60, 248-263, 2006
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