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Agglomeration and Endogenous Capital

  • Richard E. Baldwin

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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File URL: http://www.nber.org/papers/w6459.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6459.

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Date of creation: Mar 1998
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Publication status: published as European Economic Review, Vol.43, no.2 (1999): 253-280.
Handle: RePEc:nbr:nberwo:6459
Note: ITI
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Richard Baldwin, 1989. "Measureable Dynamic Gains from Trade," NBER Working Papers 3147, National Bureau of Economic Research, Inc.
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  8. Puga, Diego, 1999. "The rise and fall of regional inequalities," European Economic Review, Elsevier, vol. 43(2), pages 303-334, February.
  9. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  10. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
  11. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  12. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
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