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Spatial Equilibria: The Case of Two Regions

Author

Listed:
  • Konstantin Kucheryavyy
  • Gary Lyn
  • Andrés Rodríguez-Clare

Abstract

In this paper we characterize the set of equilibria in a generalized version of the canonical two-region economic geography model that nests the class of models in Allen and Arkolakis (2014) as well as Krugman (1991) and features an input-output loop. We provide sufficient conditions for uniqueness of equilibria that — in contrast to the well-know result in Allen and Arkolakis (2014) — allow for positive agglomeration externalities, which concentrate economic activity, even in the absence of congestion effects, which disperse it, and highlight the key role played by three additional parameters: the trade elasticity, which regulates the strength of the dispersion force associated with the decline in the terms of trade caused by migration into a region; trade costs, which weaken this dispersion force by limiting trade across regions; and the importance of the agricultural sector, which pushes against agglomeration forces in manufacturing.

Suggested Citation

  • Konstantin Kucheryavyy & Gary Lyn & Andrés Rodríguez-Clare, 2021. "Spatial Equilibria: The Case of Two Regions," NBER Working Papers 29592, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29592
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    Cited by:

    1. Patrizio Bifulco & Jochen Gluck & Oliver Krebs & Bohdan Kukharskyy, 2022. "Single and Attractive: Uniqueness and Stability of Economic Equilibria under Monotonicity Assumptions," Papers 2209.02635, arXiv.org.
    2. Farid Farrokhi, 2021. "Skill, Agglomeration, And Inequality In The Spatial Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 671-721, May.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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