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Home Goods and Regional Price Indices: A Perspective from New Economic Geography

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Abstract

In standard models of New Economic Geography the overall regional price index in the centre is lower than in the periphery, because trade in manufacturing imposes transportation costs whereas trade in agriculture is assumed to be costless. Since real world observations suggest higher overall CPIs in the centre than in the periphery, this paper presents a model where a home goods sector is added. The model is able to explain a sustainable core-periphery structure with higher aggregate CPI in the centre. This structure can emerge endogenously out of the system itself and does not need to exist initially. Hence, the standard model of New Economic Geography can gain realism by the modification proposed in this paper.

Suggested Citation

  • Jens Südekum, 2001. "Home Goods and Regional Price Indices: A Perspective from New Economic Geography," Departmental Discussion Papers 109, University of Goettingen, Department of Economics.
  • Handle: RePEc:got:vwldps:109
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    File URL: http://www2.vwl.wiso.uni-goettingen.de/departmentpaper/NO_109.pdf
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    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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    Cited by:

    1. Salvatore Barbaro & Jens Südekum, 2004. "Reforming a complicated income tax system: The political economics perspective," Departmental Discussion Papers 120, University of Goettingen, Department of Economics.
    2. Petra Enß & Robert Schwager, 2006. "Kommunaler Finanzausgleich und Gewerbesteuerhebesätze in Niedersachsen," Departmental Discussion Papers 127, University of Goettingen, Department of Economics.
    3. Renate Ohr, 2009. "European Monetary Union at Ten: Had the German Maastricht Critics Been Wrong?," Departmental Discussion Papers 141, University of Goettingen, Department of Economics.
    4. Salvatore Barbaro, 2002. "The Distributional Impact of Subsidies to Higher Education - Empirical Evidence from Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(4), pages 458-458, December.
    5. Corinna Ahlfeld, 2009. "The scapegoat of heterogeneity - How fragmentation influences political decisionmaking," Departmental Discussion Papers 143, University of Goettingen, Department of Economics.
    6. Salvatore Barbaro, 2003. "The Combined Effect of Taxation and Subsidization on Human Capital Investment," Departmental Discussion Papers 116, University of Goettingen, Department of Economics.
    7. Thies Büttner & Robert Schwager, 2003. "Regionale Verteilungseffekte der Hochschulfinanzierung und ihre Konsequenzen," Departmental Discussion Papers 119, University of Goettingen, Department of Economics.
    8. Sascha Wolff, 2006. "Migration und ihre Determinanten im ost-westdeutschen Kontext nach der Wiedervereinigung: Ein Literaturüberblick," Departmental Discussion Papers 130, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Economic Geography; Agglomeration; Home Goods;

    JEL classification:

    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

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