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Formation of Hub Cities: Transportation Cost Advantage and Population Agglomeration

  • Hideo Konishi


    (Boston College)

Many cities are located on rivers or coasts. This paper argues that such cities developed as transportation hubs or markets for interregional trade, since these locations provide better access (lower marginal transportation costs) to other regions. Local products are collected at such hubs, and interregional trade then takes place among these transportation hubs. As the volume of trade between hubs increases, more workers are needed in order to meet labor demand for shipping and handling commodities, resulting in population agglomeration at such hubs. This paper constructs a simple three location-identical consumer model, in which transportation hub and population agglomeration emerge endogenously. In contrast with much of the literature on city formation, we introduce no economies of scale into the model. Markets are assumed to be perfectly competitive and complete. Since prices are determined in equilibrium, transportation costs and routes are simultaneously determined in the system. Population agglomeration occurs solely because of location-specific production technologies (which generates gains from trade) and the differences in transportation technologies among locations (which determines the transportation routes). It is shown that a hub city emerges when transportation technologies are heterogeneous enough.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 448.

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Length: 28 pages
Date of creation: 01 Dec 1999
Date of revision:
Publication status: published, Journal of Urban Economics 48, 1-28 (2000)
Handle: RePEc:boc:bocoec:448
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  1. Wang, P., 1989. "Agglomeration In A Linear City With Heterogeneous Households," Papers 9-89-3, Pennsylvania State - Department of Economics.
  2. Glaeser, Edward L & Hedi D. Kallal & Jose A. Scheinkman & Andrei Shleifer, 1992. "Growth in Cities," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1126-52, December.
    • Glaeser, Edward Ludwig & Kallal, Hedi D. & Scheinkman, Jose A. & Shleifer, Andrei, 1992. "Growth in Cities," Scholarly Articles 3451309, Harvard University Department of Economics.
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  3. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  4. Konishi, Hideo, 1996. "Voting with Ballots and Feet: Existence of Equilibrium in a Local Public Good Economy," Journal of Economic Theory, Elsevier, vol. 68(2), pages 480-509, February.
  5. OTTAVIANO, Gianmarco & TABUCHI , Takatoshi & THISSE, Jacques-François, . "Agglomeration and trade revisited," CORE Discussion Papers RP 1553, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. Fujita, Masahisa & Krugman, Paul & Mori, Tomoya, 1999. "On the evolution of hierarchical urban systems1," European Economic Review, Elsevier, vol. 43(2), pages 209-251, February.
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  11. Schweizer, Urs & Varaiya, Pravin & Hartwick, John, 1976. "General equilibrium and location theory," Journal of Urban Economics, Elsevier, vol. 3(3), pages 285-303, July.
  12. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-56, September.
  13. Berliant, Marcus & Wang, Ping, 1993. "Endogenous formation of a city without agglomerative externalities or market imperfections : Marketplaces in a regional economy," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 121-144, March.
  14. Fujita, Masahisa & Mori, Tomoya, 1996. "The role of ports in the making of major cities: Self-agglomeration and hub-effect," Journal of Development Economics, Elsevier, vol. 49(1), pages 93-120, April.
  15. Berliant, Marcus & Konishi, Hideo, 2000. "The endogenous formation of a city: population agglomeration and marketplaces in a location-specific production economy," Regional Science and Urban Economics, Elsevier, vol. 30(3), pages 289-324, May.
  16. Paul Krugman, 1992. "Geography and Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610868, June.
  17. Hendricks, Ken & Piccione, Michele & Tan, Guofu, 1995. "The Economics of Hubs: The Case of Monopoly," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 83-99, January.
  18. Abdel-Rahman, H. M., 1988. "Product differentiation, monopolistic competition and city size," Regional Science and Urban Economics, Elsevier, vol. 18(1), pages 69-86, February.
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