Network formation and agglomeration

In this paper, agglomeration is induced by the cost of transporting agricultural products and the transportation network. Also, unlike the models of New Economic Geography, agglomeration occurs without scale economies and transportation costs in the manufacturing sector. By locating to a single urban region, firms can access rural areas directly (without intermediaries). Another channel through which transportation networks lead to a mono-centric equilibrium is a reduction in sharing the cost of building a modern transportation network. The formation of a network depends on the trade-off between the cost of forming a direct link and the higher cost of trading via intermediaries. If the transaction cost saved from a direct link to a rural area is higher than the expense of the link itself, all regions are connected via direct links. Increasing the cost of forming a link allows urban areas to maintain direct links to other urban areas rather than rural regions. Therefore, rural areas are linked to a particular urban center, and the cities themselves form a complete network. A further increase in the cost of constructing a direct connection induces the formation of minimally connected networks.