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Agglomeration and Endogenous Capital

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Author Info
Baldwin, Richard

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

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F20 - International Economics - - International Factor Movements and International Business - - - General
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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  4. Puga, Diego, 1997. "The Rise and Fall of Regional Inequalities," CEPR Discussion Papers 1575, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February. [Downloadable!] (restricted)
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  8. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476.
  9. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
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  10. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June. [Downloadable!] (restricted)
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  11. Krugman, P. & Venables, A.J., 1995. "Globalization and the Inequality of Nations," Research Institute of Industrial Economics Working Papers 430, Research Institute of Industrial Economics (IFN).
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