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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. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, vol. 92(1), pages 120-142, March.
  2. Baldwin, Richard E., 1999. "Agglomeration and endogenous capital," European Economic Review, Elsevier, vol. 43(2), pages 253-280, February.
  3. Philippe Aghion & Peter Howitt, 1997. "Endogenous Growth Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011662, June.
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  8. Masahisa Fujita & Jacques-François Thisse, 2003. "Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Loses from It?," The Japanese Economic Review, Japanese Economic Association, vol. 54(2), pages 121-145.
  9. Diego Puga, 1996. "The rise and fall of regional inequalities," LSE Research Online Documents on Economics 20643, London School of Economics and Political Science, LSE Library.
  10. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  11. Philippe Martin & Gianmarco Ottaviano, 1996. "Growth and Agglomeration," Working Papers 1996-14, CEPII research center.
    • 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.
  12. 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.
  13. 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.
  14. Baldwin, Richard E & Martin, Philippe & Ottaviano, Gianmarco I P, 2001. " Global Income Divergence, Trade, and Industrialization: The Geography of Growth Take-Offs," Journal of Economic Growth, Springer, vol. 6(1), pages 5-37, March.
  15. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999. "Agglomeration and Trade Revisited," CIRJE F-Series CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
  16. 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.
  17. Danny Quah, 2002. "Spatial Agglomeration Dynamics," American Economic Review, American Economic Association, vol. 92(2), pages 247-252, May.
  18. Bottazzi, Laura, 2001. "Globalization and local proximity in innovation: A dynamic process," European Economic Review, Elsevier, vol. 45(4-6), pages 731-741, May.
  19. 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.
  20. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  21. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  22. Baldwin, Richard & Forslid, Rikard, 1996. "Trade Liberalization and Endogenous Growth: A q-Theory Approach," CEPR Discussion Papers 1397, C.E.P.R. Discussion Papers.
  23. 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.
  24. 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.
  25. Antonio Ciccone, 1998. "Agglomeration-effects in Europe," Economics Working Papers 499, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 1999.
  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. 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.
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