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A dynamic spatial model of rural-urban transformation with public goods

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  • Biller, Dan
  • Andres, Luis
  • Cuberes, David

Abstract

This paper develops a dynamic model that explains the pattern of population and production allocation in an economy with an urban location and a rural one. Agglomeration economies make urban dwellers benefit from a larger population living in the city and urban firms become more productive when they operate in locations with a larger labor force. However, congestion costs associated with a too large population size limit the process of urban-rural transformation. Firms in the urban location also benefit from a public good that enhances their productivity. The model predicts that in the competitive equilibrium the urban location is inefficiently small because households fail to internalize the agglomeration economies and the positive effect of public goods in urban production.

Suggested Citation

  • Biller, Dan & Andres, Luis & Cuberes, David, 2014. "A dynamic spatial model of rural-urban transformation with public goods," Policy Research Working Paper Series 7051, The World Bank.
    • Handle: RePEc:wbk:wbrwps:7051
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    2. Chisari, Omar O. & Miller, Sebastián J., 2016. "Climate Change and Migration: A CGE Analysis for Two Large Urban Regions of Latin America," IDB Publications (Working Papers) 7510, Inter-American Development Bank.

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    More about this item

    Keywords

    Economic Theory&Research; Population Policies; Urban Housing and Land Settlements; National Urban Development Policies&Strategies; Labor Policies;
    All these keywords.

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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