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Agglomeration And Regional Costs Of Living

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  • Jens Suedekum

Abstract

ABSTRACT 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.

Suggested Citation

  • Jens Suedekum, 2006. "Agglomeration And Regional Costs Of Living," Journal of Regional Science, Wiley Blackwell, vol. 46(3), pages 529-543, August.
    • Handle: RePEc:bla:jregsc:v:46:y:2006:i:3:p:529-543
    DOI: 10.1111/j.1467-9787.2006.00451.x
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    References listed on IDEAS

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    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. 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.
    3. Thisse, Jacques-François & Cavailhès, Jean & Gaigné, Carl, 2004. "Trade Costs versus Urban Costs," CEPR Discussion Papers 4440, C.E.P.R. Discussion Papers.
    4. CAVAILHÈS, Jean & GAIGNÉ, Carl & THISSE, Jacques-François, 2004. "Trade costs versus urban costs. Do jobs move to the suburbs or to the sticks ?," LIDAM Discussion Papers CORE 2004021, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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