Innovations that reduce costs of transport from rural locations may also reduce transport costs to rural areas. As transport costs fall, producers can afford to concentrate and achieve economies of scale. This paper explains an initially negative, but ultimately positive, relationship between reductions in transport costs and rural development. A two-region general equilibrium model with firm and worker spatial mobility highlights the firm and household location implications of costly transport service use by both industry and agriculture in the context of scale economies and product differentiation. The computable general equilibrium model is initialized and verified with a bi-regional Social Accounting Matrix and then used for simulations. Changes in relative transport costs are shown to affect relative regional wage rates, thus also determining the location of 'production-cost-oriented' firms.
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
1185.
Length: Date of creation: 30 Sep 1998 Date of revision: Publication status: Published in Journal of Regional Science, 1998, Vol. 38, No. 2, pp. 293-312. Handle: RePEc:isu:genres:1185
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Find related papers by JEL classification: C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming O0 - Economic Development, Technological Change, and Growth - - General R0 - Urban, Rural, and Regional Economics - - General R2 - Urban, Rural, and Regional Economics - - Household Analysis R3 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location
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.:
Hamilton, J.H. & Macleod, W.P. & Thisse, J.F., 1988.
"Spatial Competition And The Core,"
Papers
88-6, Florida - College of Business Administration.
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