DP1267 Transport Costs, Intermediate Goods and Localized Growth

Author(s): Uwe Walz
Publication Date: November 1995
Keyword(s): Economic Geography, Factor Mobility, Regional Growth
JEL(s): O18, R11, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1267

This paper presents a dynamic, two-region general equilibrium model in which inter-regional production and trade patterns are endogenously determined. Localized growth stems from geographical concentration of an industrial sector exhibiting permanent productivity increases. Geographical concentration is due to the interaction of the size of local markets and local competition in the differentiated input industry. Regional factor endowment with an immobile factor is decisive for long-run specialization, trade and growth patterns between regions if large endowment differences prevail. With equally-sized regions, multiple equilibria exist. Furthermore, the paper finds that integration might lead to increasing regional concentration of production and growth.