Agglomeration with Human and Physical Capital: an Analytically Solvable Case

This paper suggests a simple modification of the core-periphery model by Krugman (1991), which makes the model easy to solve analytically. We use the modified model to analyse the tendencies for geographical agglomeration of manufacturing industry as regions integrate economically. Two cases of human capital mobility and physical or knowledge capital moblity are treated separately. In the human capital case the model behaves qualitatively just as the core-periphery model, where manufacturing tends to agglomerate for low trade costs. In the physical capital case, on the contrary, agglomeration will not occur as a consequence of economic integration.