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Title: Agglomeration and Endogenous Capital

Author(s): Richard Baldwin

Publication Date: March 1998

Keyword(s): Economic Geography, Neoclassical Growth and Trade and Growth

Programme Area(s): International Macroeconomics and International Trade and Regional Economics

Abstract: The ?new? economic geography focuses on the footloose-labour and the vertically-linked industries models. Both are complex, since they feature demand-linked and cost-linked agglomeration forces. The paper presents 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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Bibliographic Reference

Baldwin, R. 1998. 'Agglomeration and Endogenous Capital'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1845