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Agglomeration and endogenous capital

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  • Baldwin, Richard E.

Abstract

The ‘new’ economic geography focuses on the footloose-labour and the vertically-linked industries models. Both are complex, since they feature demand-linked and cost-linked agglomeration forces. The paper presents a simpler model, where agglomeration stems from demand-linked forces arising from endogenous capital with forward-looking agents. The model’s simplicity permits many analytic results (rare in economic geography). Trade-cost levels that trigger catastrophic agglomeration are identified analytically, liberalization between almost equal-sized nations is shown to entail ‘near-catastrophic’ agglomeration, and Krugman’s informal stability test is shown to be equivalent to formal tests in a fully specified dynamic model.
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Suggested Citation

  • Baldwin, Richard E., 1999. "Agglomeration and endogenous capital," European Economic Review, Elsevier, vol. 43(2), pages 253-280, February.
    • Handle: RePEc:eee:eecrev:v:43:y:1999:i:2:p:253-280
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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