Discussion Paper Details

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Title: Economics of Agglomeration

Author(s): Masahisa Fujita and Jacques-François Thisse

Publication Date: February 1996

Keyword(s): Agglomeration, City, Externality, Imperfect Competition and Trade

Programme Area(s): International Trade and Regional Economics

Abstract: We address the fundamental question arising in economic geography: why do economic activities agglomerate in a small number of places? The main reasons for the formation of economic clusters involving firms and/or households are analysed: (i) externalities under perfect competition; (ii) increasing returns under monopolistic competition; and (iii) spatial competition under strategic interaction. We review what has been accomplished in these three domains and identify a few general principles governing the organization of economic space. Other standard lines of research in location theory are also discussed while several alternative, new approaches are proposed.

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Bibliographic Reference

Fujita, M and Thisse, J. 1996. 'Economics of Agglomeration'. London, Centre for Economic Policy Research.