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Agglomeration And Regional Costs Of Living


  • Jens Suedekum


Standard models of the new economic geography predict that costs of living are lower in the core than in the periphery. But in reality they tend to be higher in agglomeration areas, mainly because of regional differences in housing costs. In this paper, we add a home goods sector to the seminal NEG model of Krugman (1991). We show that a core-periphery structure can endogenously emerge in which the core is the more expensive area. This result has an important normative implication. Since higher costs of living imply falling real wages if there is no nominal wage premium, it is not desirable for everybody to live in the core region. Copyright Blackwell Publishing, Inc. 2006

Suggested Citation

  • Jens Suedekum, 2006. "Agglomeration And Regional Costs Of Living," Journal of Regional Science, Wiley Blackwell, vol. 46(3), pages 529-543.
  • Handle: RePEc:bla:jregsc:v:46:y:2006:i:3:p:529-543

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    References listed on IDEAS

    1. Takatoshi Tabuchi & Jacques-François Thisse, 2006. "Regional Specialization, Urban Hierarchy, And Commuting Costs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1295-1317, November.
    2. Cavailhès, Jean & Gaigné, Carl & Thisse, Jacques-François, 2004. "Trade Costs versus Urban Costs," CEPR Discussion Papers 4440, C.E.P.R. Discussion Papers.
    3. CAVAILHÈS, Jean & GAIGNÉ, Carl & THISSE, Jacques-François, 2004. "Trade costs versus urban costs. Do jobs move to the suburbs or to the sticks ?," CORE Discussion Papers 2004021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524.
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    Cited by:

    1. Cirer-Costa, Joan Carles, 2013. "The role of geography in the success of the balearic tourism industry," MPRA Paper 47701, University Library of Munich, Germany.
    2. Juan Esteban Vélez Villegas, 2009. "Los procesos de aglomeración en Colombia a la luz de la nueva geografía económica," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 27(58), pages 106-139, August.
    3. Zheng Wang & Changxin Liu & Kejing Mao, 2012. "Industry cluster: spatial density and optimal scale," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(3), pages 719-731, December.
    4. TABUCHI, Takatoshi & THISSE, Jacques-François & ZHU, Xiwei, 2014. "Does technological progress affect the location of economic activity ?," CORE Discussion Papers 2014047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Blien, Uwe & Gartner, Hermann & Stüber, Heiko & Wolf, Katja, 2007. "Expensive and low-price places to live : regional price levels and the agglomeration wage differential in Western Germany," IAB Discussion Paper 200715, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    6. Cirer-Costa, Joan Carles, 2015. "The pressure of tourism on the Mediterranean coastline and beaches," MPRA Paper 62843, University Library of Munich, Germany.
    7. Philipp Ehrl, 2014. "A breakdown of residual wage inequality in Germany," Working Papers 150, Bavarian Graduate Program in Economics (BGPE).
    8. vom Berge, Philipp, 2011. "Search Unemployment and New Economic Geography," University of Regensburg Working Papers in Business, Economics and Management Information Systems 454, University of Regensburg, Department of Economics.
    9. Pflüger, Michael, 2008. "Die Neue Ökonomische Geographie: Ein Überblick," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-54-08, University of Passau, Faculty of Business and Economics.
    10. Sergey Kichko, 2017. "Core-Periphery vs Home Market Effect: Trade in the Traditional Sector and the Demand Advantage," HSE Working papers WP BRP 159/EC/2017, National Research University Higher School of Economics.
    11. Elena Lasarte Navamuel & Dusan Paredes & Esteban Fernández Vázquez, 2012. "A true cost of living index for Spain using a microeconomic approach and censored data," Documentos de Trabajo en Economia y Ciencia Regional 26, Universidad Catolica del Norte, Chile, Department of Economics, revised Aug 2012.
    12. repec:kap:iecepo:v:14:y:2017:i:2:d:10.1007_s10368-016-0371-1 is not listed on IDEAS
    13. Uwe Blien & Hermann Gartner & Heiko Stüber & Katja Wolf, 2009. "Regional price levels and the agglomeration wage differential in western Germany," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(1), pages 71-88, March.
    14. Hajime Takatsuka & Dao-Zhi Zeng, 2013. "Industrial configuration in an economy with low transportation costs," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 51(2), pages 593-620, October.
    15. Jian Wang & Junqian Xu, 2015. "Home market effect, spatial wages disparity: an empirical reinvestigation of China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(2), pages 313-333, December.
    16. repec:ebl:ecbull:eb-17-00078 is not listed on IDEAS
    17. Pfluger, Michael & Takatoshi Tabuchi, 2008. "Trade and Location with Land as a Productive Factor," CIRJE F-Series CIRJE-F-591, CIRJE, Faculty of Economics, University of Tokyo.
    18. Schaeffer, Y. & Charlot, S., 2012. "Inequality aversion, income redistribution and economic geography," Working Papers 201204, Grenoble Applied Economics Laboratory (GAEL).
    19. Dusan Paredes, 2010. "Can NEG explains the spatial distribution of wages in developing countries? Evidence from Chile," Documentos de Trabajo en Economia y Ciencia Regional 02, Universidad Catolica del Norte, Chile, Department of Economics, revised Sep 2010.

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