An Analytical Model for the Formation of Economic Clusters

Abstract

A simple spatial economy derived from microeconomic foundations is presented to gain insight into the formation of economic clusters. In this model, the formation of economic clusters is a consequence of the competition between economic forces that are consistent with atomistic agents maximizing their utility. An analytic approach is used to obtain the evolution of economic clusters. With this approach, the number of clusters which will grow can be predicted. These results are derived in the traditional one-dimensional geometry and extended to the more realistic two-dimensional landscape. A connection between the two-dimensional solution and the formation of Edge Cities is made.

Keywords: Cities, Agglomeration, Edge Cities, Mathematical Modelling, Trade Theory

JEL Classification: R1, C6, F12