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Agglomeration, vertical specialization, and the strength of industrial linkages


  • Jan Kranich


This paper picks up the seminal model of Venables (1996) and provides a quantifying concept for the sectoral coherence in vertical-linkage models of the New Economic Geography. Based upon an alternative approach to solve the model and to determine critical trade cost values, this paper focuses on the interdependencies between agglomeration, specialization and the strength of vertical linkages. A central concern is the idea of an ’industrial base,’ which is attracting linked industries but is persistent to relocation. As a main finding, the intermediate cost share and substitution elasticity basically determine the strength of linkages. Thus, these parameters affect how strong the industrial base responds to changes in trade costs, relative wages and market size.
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  • Jan Kranich, 2011. "Agglomeration, vertical specialization, and the strength of industrial linkages," Papers in Regional Science, Wiley Blackwell, vol. 90(1), pages 159-178, March.
  • Handle: RePEc:bla:presci:v:90:y:2011:i:1:p:159-178 DOI: j.1435-5957.2010.00290.x

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    References listed on IDEAS

    1. Rivera-Batiz, Francisco L., 1988. "Increasing returns, monopolistic competition, and agglomeration economies in consumption and production," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 125-153, February.
    2. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    3. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-359, May.
    4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    5. repec:hhs:iuiwop:430 is not listed on IDEAS
    6. Gianmarco Ottaviano, 2003. "Regional Policy in the Global Economy: Insights from New Economic Geography," Regional Studies, Taylor & Francis Journals, vol. 37(6-7), pages 665-673.
    7. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    8. David L. Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
    9. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
    10. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
    11. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    12. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers 2008 - 2015 142, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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    Cited by:

    1. Peng, Ling & Hong, Yongmiao, 2013. "Productivity spillovers among linked sectors," China Economic Review, Elsevier, vol. 25(C), pages 44-61.
    2. repec:wyi:journl:002193 is not listed on IDEAS

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation


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