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Agglomeration and Endogenous Capital

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  • Richard E. Baldwin

Abstract

The new' economic geography focuses on the footloose-labor and the vertically-linked-industries models. Both are complex since they feature demand-linked and cost-linked agglomeration forces. I present a simpler model where agglomeration stems from demand-linked forces arising from endogenous capital with forward-looking agents. The model's simplicity permits many analytic results (rare in economic geography). Trade-cost levels that trigger catastrophic agglomeration are identified analytically, liberalization between almost equal-sized nations is shown to entail near-catastrophic' agglomeration, and Krugman's informal stability test is shown to be equivalent to formal tests in a fully specified dynamic model.

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  • Richard E. Baldwin, 1998. "Agglomeration and Endogenous Capital," NBER Working Papers 6459, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6459
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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