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Agglomeration and Regional Growth

  • Baldwin, Richard
  • Martin, Philippe

We review the theoretical links between growth and agglomeration. Growth, in the form of innovation, can be at the origin of catastrophic spatial agglomeration in a cumulative process à la Myrdal. One of the surprising features of the Krugman (1991) model, was that the introduction of partial labour mobility in a standard ‘new trade model’ with trade costs could lead to catastrophic agglomeration. The growth analog to this result is that the introduction of endogenous growth in the same type of ‘new trade model’ can lead to the same result. A difference with the labour mobility version is that the results are easier to derive from the analytical point of view in the endogenous growth version. We show that the relation between growth and agglomeration depends crucially on capital mobility between regions. The absence of capital mobility is at the heart of the possibility of spatial agglomeration with catastrophe. In addition, growth alters the process of location even without catastrophe. In particular, and contrary to the fundamentally static models of the New Economic Geography, spatial concentration of economic activities may be consistent with a process of delocation of firms towards poor regions. Finally, the presence of localized technology spillovers implies that spatial agglomeration is conducive to growth.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3960.

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Date of creation: Jul 2003
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Handle: RePEc:cpr:ceprdp:3960
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  1. Richard E. Baldwin & Rikard Forslid, 1996. "Trade Liberalization and Endogenous Growth: A q-Theory Approach," NBER Working Papers 5549, National Bureau of Economic Research, Inc.
  2. Martin, Philippe & Ottaviano, Gianmarco I P, 2001. "Growth and Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 947-68, November.
  3. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  4. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, vol. 92(1), pages 120-142, March.
  5. Baldwin, Richard & Martin, Philippe & Ottaviano, Gianmarco, 1998. "Global Income Divergence, Trade and Industrialization: The Geography of Growth Take-Offs," CEPR Discussion Papers 1803, C.E.P.R. Discussion Papers.
  6. Fujita, Masahisa & Thisse, Jacques-François, 2002. "Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Looses From It?," CEPR Discussion Papers 3135, C.E.P.R. Discussion Papers.
  7. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  8. Gilles Duranton & Diego Puga, 2000. "Nursery Cities: Urban diversity, process innovation, and the life-cycle of products," Working Papers dpuga-00-01, University of Toronto, Department of Economics.
  9. Ciccone, Antonio, 2002. "Agglomeration effects in Europe," European Economic Review, Elsevier, vol. 46(2), pages 213-227, February.
  10. Ottaviano, Gianmarco & Thisse, Jacques-François, 1998. "Agglomeration and Trade Revisited," CEPR Discussion Papers 1903, C.E.P.R. Discussion Papers.
  11. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
  12. Puga, Diego, 1999. "The rise and fall of regional inequalities," European Economic Review, Elsevier, vol. 43(2), pages 303-334, February.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  14. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," NBER Working Papers 3993, National Bureau of Economic Research, Inc.
  15. Philippe Aghion & Peter Howitt, 1997. "Endogenous Growth Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011662, June.
  16. Quah, Danny, 2002. "Spatial Agglomeration Dynamics," CEPR Discussion Papers 3208, C.E.P.R. Discussion Papers.
  17. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  18. Dieter M. Urban, 2007. "Neoclassical Growth, Manufacturing Agglomeration, and Terms of Trade," Review of International Economics, Wiley Blackwell, vol. 15(5), pages 1014-1035, November.
  19. Richard E. Baldwin, 1998. "Agglomeration and Endogenous Capital," NBER Working Papers 6459, National Bureau of Economic Research, Inc.
  20. Williamson, Jeffrey G., 1988. "Migration and urbanization," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 11, pages 425-465 Elsevier.
  21. Gianmarco I. P. Ottaviano, 1996. "The Location Effects of Isolation," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(III), pages 427-440, September.
  22. Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999. "Growing locations: Industry location in a model of endogenous growth," European Economic Review, Elsevier, vol. 43(2), pages 281-302, February.
  23. Richard E. Baldwin & Rikard Forslid, 1999. "The Core-Periphery Model and Endogenous Growth: Stabilising and De-Stabilising Integration," NBER Working Papers 6899, National Bureau of Economic Research, Inc.
  24. Walz, Uwe, 1997. "Growth and Deeper Regional Integration in a Three-County Model," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 492-507, November.
  25. Yamamoto, Kazuhiro, 2003. "Agglomeration and growth with innovation in the intermediate goods sector," Regional Science and Urban Economics, Elsevier, vol. 33(3), pages 335-360, May.
  26. Duncan Black & Vernon Henderson, 1999. "A Theory of Urban Growth," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 252-284, April.
  27. Bottazzi, Laura, 2001. "Globalization and local proximity in innovation: A dynamic process," European Economic Review, Elsevier, vol. 45(4-6), pages 731-741, May.
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