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Agglomeration and Endogenous Capital

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  • Baldwin, Richard

Abstract

The ‘new’ economic geography focuses on the footloose-labour and the vertically-linked industries models. Both are complex, since they feature demand-linked and cost-linked agglomeration forces. The paper presents a simpler model, where agglomeration stems from demand-linked forces arising from endogenous capital with forward-looking agents. The model’s simplicity permits many analytic results (rare in economic geography). Trade-cost levels that trigger catastrophic agglomeration are identified analytically, liberalization between almost equal-sized nations is shown to entail ‘near-catastrophic’ agglomeration, and Krugman’s informal stability test is shown to be equivalent to formal tests in a fully specified dynamic model.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1845.

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Date of creation: Mar 1998
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Handle: RePEc:cpr:ceprdp:1845

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Keywords: Economic Geography; Neoclassical Growth; Trade and Growth;

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  1. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
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  9. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  10. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
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