Agglomeration and Endogenous Capital

29 Pages Posted: 10 Jul 2000 Last revised: 27 Aug 2022

See all articles by Richard E. Baldwin

Richard E. Baldwin

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: March 1998

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.

Suggested Citation

Baldwin, Richard E., Agglomeration and Endogenous Capital (March 1998). NBER Working Paper No. w6459, Available at SSRN: https://ssrn.com/abstract=226204

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