DP1344 Economics of Agglomeration

Author(s): Masahisa Fujita, Jacques-François Thisse
Publication Date: February 1996
Keyword(s): Agglomeration, City, Externality, Imperfect Competition, Trade
JEL(s): F12, L13, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1344

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.