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Engel's law, Petty's law, and agglomeration

  • Murata, Yasusada

This paper presents a model of structural change and agglomeration. A decline in transportation costs, by enhancing consumers' purchasing power, leads to Engel's law of the demand shift from agricultural to non-agricultural goods. At the same time, the decline in transportation costs, by enlarging the extent of the market for non-agricultural goods, induces Petty's law of the labor reallocation from agriculture to non-agricultural activities. These structural transformations weaken dispersion forces given by farmers tied to the land, whereas they strengthen agglomeration forces generated by footloose non-agricultural workers. Thus, a substantial decline in transportation costs gives rise to agglomeration of non-agricultural activities.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 87 (2008)
Issue (Month): 1 (August)
Pages: 161-177

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Handle: RePEc:eee:deveco:v:87:y:2008:i:1:p:161-177
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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