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Agglomeration and population aging in a two region model of exogenous growth

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  • Theresa Grafeneder-Weissteiner

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

  • Klaus Prettner

    ()
    (Vienna Institute of Demography, Austrian Academy of Sciences)

Abstract

This article investigates the effects of introducing demography into the New Economic Geography. We generalize the constructed capital approach, which relies on infinite individual planning horizons, by introducing mortality. The resulting overlapping generation framework with heterogeneous individuals allows us to study the effects of aging on agglomeration processes by analytically identifying the level of trade costs that triggers catastrophic agglomeration. Interestingly, this threshold value is rather sensitive to changes in mortality. In particular, the introduction of a positive mortality rate makes the symmetric equilibrium more stable and therefore counteracts agglomeration tendencies. In sharp contrast to other New Economic Geography approaches, this implies that deeper integration is not necessarily associated with higher interregional inequality.

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Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp125.

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Date of creation: Feb 2009
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Handle: RePEc:wiw:wiwwuw:wuwp125

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Citations

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Cited by:
  1. Theresa Grafeneder-Weissteiner, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Papers wuwp132, Vienna University of Economics, Department of Economics.
  2. Theresa Grafeneder-Weissteiner, 2011. "The joint effect of demographic change on growth and agglomeration," ERSA conference papers ersa10p834, European Regional Science Association.
  3. Theresa Grafeneder-Weissteiner & Klaus Prettner, 2010. "Agglomeration processes in aging societies," Department of Economics Working Papers wuwp131, Vienna University of Economics, Department of Economics.

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