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Looking for multiple equilibria when geography matters: German city growth and the WWII shock

  • Bosker, Maarten
  • Brakman, Steven
  • Garretsen, Harry
  • Schramm, Marc

Many modern trade and growth models are characterized by multiple equilibria. In theory the analysis of multiple equilibria is possible, but in practice it is difficult to test for the presence of multiple equilibria. Based on the methodology developed by Davis and Weinstein (2004) for the case of Japanese cities and WWII, we look for multiple equilibria in a model of German city growth. The strategic bombing of Germany during WWII enables us to assess the empirical relevance of multiple equilibria in a model of city-growth. In doing so, and in addition to the Davis and Weinstein framework, we look at the spatial inter-dependencies between cities. The main findings are twofold. First, multiple equilibria seem to be present in German city growth. Our evidence supports a model with 2 stable equilibria. Second, the explicit inclusion of geography matters. Evidence for multiple equilibria is weaker when spatial interdependencies are not taken into account.

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

Volume (Year): 61 (2007)
Issue (Month): 1 (January)
Pages: 152-169

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Handle: RePEc:eee:juecon:v:61:y:2007:i:1:p:152-169
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622905

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  1. Stephen Redding & Daniel M. Sturm, 2005. "The costs of remoteness: evidence from German division and reunification," LSE Research Online Documents on Economics 51613, London School of Economics and Political Science, LSE Library.
  2. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  3. Head, Keith & Mayer, Thierry, 2004. "The empirics of agglomeration and trade," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 59, pages 2609-2669 Elsevier.
  4. Diego Puga, 1996. "The Rise and Fall of Regional Inequalities," CEP Discussion Papers dp0314, Centre for Economic Performance, LSE.
  5. Steven Brakman & Harry Garretsen & Marc Schramm, 2004. "The strategic bombing of German cities during World War II and its impact on city growth," Journal of Economic Geography, Oxford University Press, vol. 4(2), pages 201-218, April.
  6. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  7. David E. Weinstein & Donald R. Davis, 2004. "Search for Multiple Equilibria in Urban Industrial Structure," Econometric Society 2004 North American Winter Meetings 639, Econometric Society.
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