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How density economies in international transportation link the internal geography of trading partners

Author

Listed:
  • Kristian Behrens

    (CORE - UCL - Université Catholique de Louvain = Catholic University of Louvain)

  • Carl Gaigné

    (ESR - Unité de recherche d'Économie et Sociologie Rurales - INRA - Institut National de la Recherche Agronomique)

  • Gianmarco I.P. Ottaviano

    (Dipartimento di Scienze Economiche - UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna, Fondazione Eni Enrico Mattei, Centre for Economic Policy Research)

  • Jacques-François Thisse

    (CORE - UCL - Université Catholique de Louvain = Catholic University of Louvain, Centre for Economic Policy Research)

Abstract

We present a two-country four-region model of new economic geography that partly endogenizes the level of trade costs. Contrary to the existing literature, we assume that international unit shipping costs depend on the volume of trade, due to the presence of density (dis)economies. We show that agglomeration (or dispersion) within a country may be induced by the geography of the other country through the channel of trade. Furthermore, whereas density economies may give rise to multiple equilibria and catastrophic agglomeration in both countries, density diseconomies lead to a smooth agglomeration process exhibiting a unique stable equilibrium.

Suggested Citation

  • Kristian Behrens & Carl Gaigné & Gianmarco I.P. Ottaviano & Jacques-François Thisse, 2006. "How density economies in international transportation link the internal geography of trading partners," Post-Print hal-02665142, HAL.
    • Handle: RePEc:hal:journl:hal-02665142
    DOI: 10.1016/j.jue.2006.02.007
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