DP2102 Agglomeration with Human and Physical Capital: an Analytically Solvable Case

Author(s): Rikard Forslid
Publication Date: March 1999
Keyword(s): Agglomeration, Capital Mobility, Economic Geography
JEL(s): F12, F15, F21, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2102

This paper suggests a simple modification of the core-periphery model by Krugman (1991), which makes the model easy to solve analytically. We use the modified model to analyse the tendencies for geographical agglomeration of manufacturing industry as regions integrate economically. Two cases of human capital mobility and physical or knowledge capital moblity are treated separately. In the human capital case the model behaves qualitatively just as the core-periphery model, where manufacturing tends to agglomerate for low trade costs. In the physical capital case, on the contrary, agglomeration will not occur as a consequence of economic integration.