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Economic development and industrial concentration: An inverted U-curve

  • Junius, Karsten
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    This paper sets up an economic geography model to show the endogenous forces that determine the degree of industry concentration in the course of economic development. The model includes centrifugal forces, such as home market effects and access to intermediate suppliers, and centripetal forces, such as demand pull of dispersed resources and congestion effects. Economic development increases the size of the industrial sector in terms of employment relative to the size of the agricultural sector. The relative strength of centripetal and centrifugal forces depends on the initial industry distribution, transport costs, and the level of economic development. These parameters lead to an inverted U-curve pattern of industry concentration, which is first increasing and then decreasing with per capita GDP. The model shows why the curve is more pronounced in newly industrializing economies than in industrialized countries, thereby explaining exceptionally high primacy ratios in today's developing countries.

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    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 770.

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    Date of creation: 1996
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    Handle: RePEc:kie:kieliw:770
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    1. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
    2. Stern, David I. & Common, Michael S. & Barbier, Edward B., 1996. "Economic growth and environmental degradation: The environmental Kuznets curve and sustainable development," World Development, Elsevier, vol. 24(7), pages 1151-1160, July.
    3. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
    4. Krugman, Paul R & Venables, Anthony J, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 857-80, November.
    5. Grossman, Gene M & Krueger, Alan B, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 353-77, May.
    6. 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.
    7. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    8. Syrquin, Moshe, 1988. "Patterns of structural change," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 7, pages 203-273 Elsevier.
    9. Brakman, S. & Garretsen, H. & Gigengack, R. & van Marrewijk, C. & Wagenvoort, R., 1993. "Congestion and Industrial Location," Papers 554, Groningen State, Institute of Economic Research-.
    10. Venables, Anthony J, 1993. "Equilibrium Locations of Vertically Linked Industries," CEPR Discussion Papers 802, C.E.P.R. Discussion Papers.
    11. Junius, Karsten, 1996. "Limits to industrial agglomeration," Kiel Working Papers 762, Kiel Institute for the World Economy.
    12. Brezis, Elise S & Krugman, Paul R, 1997. " Technology and the Life Cycle of Cities," Journal of Economic Growth, Springer, vol. 2(4), pages 369-83, December.
    13. Raul Livas Elizondo & Paul Krugman, 1992. "Trade Policy and the Third World Metropolis," NBER Working Papers 4238, National Bureau of Economic Research, Inc.
    14. Krugman, Paul, 1993. "On the number and location of cities," European Economic Review, Elsevier, vol. 37(2-3), pages 293-298, April.
    15. Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
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