DP1903 Agglomeration and Trade Revisited

Author(s): Gianmarco Ottaviano, Jacques-François Thisse
Publication Date: June 1998
Keyword(s): Agglomeration, Monopolistic Competition, spatial price policy, Trade
JEL(s): F12, L13, R13
Programme Areas: Industrial Organization, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1903

The purpose of this paper is two-fold. First, we present a model of agglomeration and trade that displays the main features of the recent economic geography literature, while allowing for the derivation of analytical results by means of simple algebra. Second, we show how this framework can be used to tackle the following important issues: (i) the impact on agglomeration of alternative pricing policies used in the space-economy, with a special focus on the distinction between segmented and integrated markets; (ii) a forward-looking approach to the dynamics of migration in the process of agglomeration, instead of the simple Marshallian model used so far in the economic geography literature.