Agglomeration and growth: The effects of commuting costs
We present a model of industrial location and endogenous growth with congestion costs. According to the interplay between knowledge spillovers and commuting costs, we are able to obtain both a Krugman-type and a bell-shaped agglomeration outcome. In the first case, the economy experiences a permanent income inequality in the steady state and income divergence in the transitional dynamics. In the second case, we observe an enlargement of the industrial core of the economy with a strong catching up by the periphery. Welfare analysis shows that congestion creates (in the bell-shaped agglomeration case) a negative welfare effect on peripheral unskilled workers and it renders the agglomerated equilibrium Pareto inferior to dispersion. Copyright (c) 2009 the author(s). Journal compilation (c) 2009 RSAI.
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Volume (Year): 89 (2010)
Issue (Month): 1 (03)
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