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Heterogeneous transport costs and spatial sorting in a model of New Economic Geography

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  • Lang, Corey

Abstract

Transportation costs are of central importance in the New Economic Geography literature, though assumptions about transportation costs continue to be simplistic. This paper begins to address these simplifications by assuming that transportation costs for manufactured goods are heterogeneous. Basic results are consistent with standard models showing dispersion of economic activity for high transport costs and eventual agglomeration as transport costs decline. However, several novel features arise too. Many unstable, dispersed equilibria exist for high average transport costs, but converge to a stable equilibrium path as transport costs decrease. Equilibrium paths smoothly transition from dispersion to agglomeration and do so at an increasing rate. Additionally, transport costs directly influence firms' location decisions and firms spatially sort by transport cost.

Suggested Citation

Handle: RePEc:eee:paresc:v:89:y:2010:i:1:p:191-203
DOI: 10.1111/j.1435-5957.2009.00245.x
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File URL: http://www.sciencedirect.com/science/article/pii/S1056819023020985
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JEL classification:

  • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F20 - International Economics - - International Factor Movements and International Business - - - General

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