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Agglomeration and Endogenous Capital

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  • Richard E. Baldwin

Abstract

The new' economic geography focuses on the footloose-labor and the vertically-linked-industries models. Both are complex since they feature demand-linked and cost-linked agglomeration forces. I present 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6459.

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Date of creation: Mar 1998
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Publication status: published as European Economic Review, Vol.43, no.2 (1999): 253-280.
Handle: RePEc:nbr:nberwo:6459

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  1. Richard Baldwin, 1989. "Measureable Dynamic Gains from Trade," NBER Working Papers 3147, National Bureau of Economic Research, Inc.
  2. Diego Puga, 1996. "The rise and fall of regional inequalities," LSE Research Online Documents on Economics 20643, London School of Economics and Political Science, LSE Library.
  3. Faini, Riccardo, 1984. "Increasing Returns, Non-Traded Inputs and Regional Development," Economic Journal, Royal Economic Society, vol. 94(374), pages 308-23, June.
  4. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  5. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  6. 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.
  7. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  8. Olivier J. Blanchard, 1984. "Debt, Deficits and Finite Horizons," NBER Working Papers 1389, National Bureau of Economic Research, Inc.
  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.
  10. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  11. 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, December.
  12. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
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