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Agglomeration and Endogenous Capital

  • Baldwin, Richard

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1845.

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Date of creation: Mar 1998
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Handle: RePEc:cpr:ceprdp:1845
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  1. Puga, Diego, 1997. "The Rise and Fall of Regional Inequalities," CEPR Discussion Papers 1575, C.E.P.R. Discussion Papers.
  2. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
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  8. Faini, Riccardo, 1984. "Increasing Returns, Non-Traded Inputs and Regional Development," Economic Journal, Royal Economic Society, vol. 94(374), pages 308-23, June.
  9. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  10. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
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