DP1354 The Spread of Industry: Spatial Agglomeration in Economic Development

Author(s): Diego Puga, Anthony Venables
Publication Date: February 1996
Keyword(s): Agglomeration, Industrialization, Linkages, Location
JEL(s): F12, O14, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1354

This paper describes the spread of industry from country to country as a region grows. All industrial sectors are initially agglomerated in one country, tied together by input-output links between firms. Growth expands industry more than other sectors, bidding up wages in the country in which industry is clustered. At some point some firms start to move away, and when a critical mass is reached industry expands in another country, raising wages there. We establish the circumstances in which industry spills over, which sectors move out first, and which are more important in triggering a critical mass.