The joint effect of demographic change on growth and agglomeration
Recently, there has been wide interest in the â€šÃ„Ãºeconomicsâ€šÃ„Ã¹ of population aging. Demographic change has crucial consequences for economic behavior; it e.g. implies that consumption and investment decisions vary over the life-cycle. The latter has important implications for economic growth, whereas the former is decisive for the location of economic activity as emphasized in the New Economic Geography (NEG) literature. Both growth and agglomeration processes are, however, themselves interlinked, since technological spillovers, being the engines of endogenous growth, are often localized. This linkage has inspired the development of frameworks that combine (endogenous) growth features with NEG models to study the joint process of creation and location of economic activity. All these models focus, however, on the consequences of increased economic integration while ignoring any potential effect of demographic change. This paper closes the gap by incorporating an overlapping generation structure into Baldwin (2001) 's NEG model with learning spillovers and thus allows to investigate how lifetime uncertainty impacts upon growth and agglomeration. The main results are twofold. First, nonzero mortality rates support a more equal distribution of productive factors by introducing an additional dispersion force that countervails the agglomeration tendencies resulting from endogenous growth through localized knowledge spillovers. For sufficiently high interregional knowledge spillovers, the turnover of generations can even prevent regions from unequal development. Moreover, lifetime uncertainty considerably reduces the possibility of agglomeration being the result of a self-fulfilling prophecy. Second, nonzero mortality rates lower both the symmetric equilibrium's as well as the core-periphery's growth rate. As long as learning spillovers are not purely localized, this decrease is, however, more pronounced for the core-periphery outcome. Thus, in sharp contrast to standard NEG findings, agglomeration is not necessarily conducive to growth. This also implies that there might not be any trade-off between fostering an equal distribution of productive factors and high economic growth which would result from e.g. increased economic integration if agglomeration were unambiguously pro-growth. Baldwin, R. E., Martin, P., and Ottaviano, G. I. P. (2001). Global income divergence, trade, and industrialization: The geography of growth take-offs. Journal of Economic Growth, 6:5-37.
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Welthandelsplatz 1, 1020 Vienna, Austria|
Web page: http://www.ersa.org
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baldwin, Richard E & Forslid, Rikard, 2000. "The Core-Periphery Model and Endogenous Growth: Stabilizing and Destabilizing Integration," Economica, London School of Economics and Political Science, vol. 67(267), pages 307-24, August.
- Theresa Grafeneder-Weissteiner & Klaus Prettner, 2009.
"Agglomeration and population ageing in a two region model of exogenous growth,"
0901, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
- Theresa Grafeneder-Weissteiner & Klaus Prettner, 2009. "Agglomeration and population aging in a two region model of exogenous growth," Department of Economics Working Papers wuwp125, Vienna University of Economics and Business, Department of Economics.
- Paul Romer, 1989.
"Endogenous Technological Change,"
NBER Working Papers
3210, National Bureau of Economic Research, Inc.
- Richard E. Baldwin, 1998.
"Agglomeration and Endogenous Capital,"
NBER Working Papers
6459, National Bureau of Economic Research, Inc.
- Paul Krugman, 1990.
"Increasing Returns and Economic Geography,"
NBER Working Papers
3275, National Bureau of Economic Research, Inc.
- Klaus Prettner, 2009.
"Population ageing and endogenous economic growth,"
0908, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
- Martin, Philippe & I.P. Ottaviano, Gianmarco, 1999.
"Growing locations: Industry location in a model of endogenous growth,"
European Economic Review,
Elsevier, vol. 43(2), pages 281-302, February.
- Martin, Philippe & Ottaviano, Gianmarco, 1996. "Growing Locations: Industry Location in a Model of Endogenous Growth," CEPR Discussion Papers 1523, C.E.P.R. Discussion Papers.
- 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.
- 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.
- Paul Krugman, 1991. "History versus Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 651-667.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa10p834. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier)
If references are entirely missing, you can add them using this form.