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Title: Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Looses From It?

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

Publication Date: January 2002

Keyword(s): agglomeration, endogenous growth, patent and regional growth

Programme Area(s): International Trade and Regional Economics

Abstract: This Paper proposes a two-region model of endogenous growth, which is a natural combination of a core-periphery model a la Krugman and of a model of endogenous growth a la Grossman/Helpman/Romer. Specifically, we add to the core-periphery model an R&D sector that uses skilled labour to create new varieties for the modern sector, while forward-looking migration behaviour is introduced. The innovation activity in the R&D sector involves knowledge externalities among skilled workers. Our analysis suggests that the presence of such a sector reinforces the tendency toward agglomeration, and supports the idea that the additional growth spurred by agglomeration may lead to a Pareto-dominant outcome such that when the economy moves from dispersion to agglomeration, innovation follows a much faster pace. As a consequence, even those who stay put in the periphery are better off than under dispersion, provided that the growth effect triggered by the agglomeration is strong enough.

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Bibliographic Reference

Fujita, M and Thisse, J. 2002. 'Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Looses From It?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3135