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Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Loses from It?

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  • Masahisa Fujita
  • Jacques‐François Thisse

Abstract

This paper proposes a two‐region model of endogenous growth, which is a natural combination of a core–periphery model à la Krugman and an endogenous growth model à la Grossman/Helpman/Romer. The innovation activity in the R&D sector involves knowledge externalities among skilled workers. Our analysis supports the idea that the additional growth spurred by agglomeration may lead to a Pareto‐dominant outcome such that, when the economy moves from dispersion to agglomeration, innovation follws a much faster pace. As a consequence, even those who stay put in the periphery are better off than under dispersion, provided that the growth effect triggered by the agglomeration is strong enough. JEL Classification Numbers: F43, O18, R11

Suggested Citation

  • Masahisa Fujita & Jacques‐François Thisse, 2003. "Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Loses from It?," The Japanese Economic Review, Japanese Economic Association, vol. 54(2), pages 121-145, June.
    • Handle: RePEc:bla:jecrev:v:54:y:2003:i:2:p:121-145
    DOI: 10.1111/1468-5876.00250
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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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