DP3386 On the Number and Size of Cities

Author(s): Takatoshi Tabuchi, Jacques-François Thisse, Dao-Zhi Zeng
Publication Date: May 2002
Keyword(s): agglomeration, city, multi-regional system, multiplicity of equilibria, transport costs, urban costs
JEL(s): F12, L13, R13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3386

We study the effects of a decrease in trade costs on the spatial distribution of industry in a multi-regional economy, when a rise in the regional population of workers generates higher urban costs. When the number of cities is unaffected by falling trade costs, small cities become smaller for large trade costs, medium-sized cities become smaller for medium values of trade costs, and large cities become smaller for small trade costs. Furthermore, when urban costs are ?identical,? we show that there exists a path of stable equilibria such that the industry, first, experiences progressive agglomeration into a decreasing number of cities and, then, dispersion into a growing number of cities. The second phase arises because of the increasing urban costs associated with the process of agglomeration.