A CEPII/CEPR workshop on ‘Growth, Trade and Location’ was held in Royaumont on 26 May 1997. The workshop, which was organized by Richard Baldwin (Graduate Institute of International Studies, Geneva, and CEPR), Philippe Martin (Graduate Institute of International Studies, Geneva, CEPII, Paris, and CEPR) and Constanze Picking (CEPR), formed part of CEPR’s research programme on ‘Globalization and Regionalism: Policy-Making in a Less National World (GARP)’, supported by the Ford Foundation and the French regional development agency, Délégation à l’Aménagement du Territoire et à l’Action Régionale (DATAR).

First developed by Krugman and Venables, the ‘New Economic Geography’ focuses on the presence of

circular causation mechanisms to explain the spatial concentration of economic activities. Often described by means of localized spillovers, two main centripetal forces have been identified: the preference for variety on the consumption side (the demand link); and the efficiency of increased diversity in intermediate goods (the cost link). Common centrifugal forces are transport costs and trade barriers, and the increase in prices caused by geographical concentration. The papers presented during the workshop focused on the question of convergence, both at regional and national levels, the stability of the different possible spatial equilibria, and the geographical links between innovation and production.

‘The Core-Periphery Model and Endogenous Growth’, jointly written by Richard Baldwin (Graduate Institute of International Studies, Geneva, and CEPR) and Rikard Forslid (Lunds Universitet and CEPR), investigated the influence of endogenous growth on the stability of equilibria in spatial distribution of activity models. The authors found that, whenever there are agglomeration forces – such as demand or cost links – at work, accounting for growth adds to these effects, thereby enabling it to play a highly destabilizing role. In this case, even the presence of high trade barriers (which permit the existence of a symmetric stable equilibrium in ‘classical theory’) can no longer ensure the stability of such an equilibrium. However, interregional learning spillovers and capital mobility constitute stabilizing factors, so a ‘catastrophic’ outcome is by no means predetermined. Riccardo Faini (Università degli Studi di Brescia and CEPR) stressed the importance of migration for the final outcome and the necessity of exploring further the motivations behind it.

The paper by Philippe Martin (Graduate Institute of International Studies, Geneva, CEPI, Paris, and CEPR) and Gianmarco Ottaviano (Università di Bologna, Università Bocconi and CEPR) arrived at the same conclusions about the existence of a circular-causation relationship between growth and agglomeration, even in the absence of the usual demand or cost links. In ‘Growth and Agglomeration’, Martin and Ottaviano showed how industrial agglomeration spurs growth by reducing innovation costs through a lessening of transaction costs. Since, at the same time, growth fosters agglomeration via the existence of inter-temporal technological spillovers, the two are mutually self-reinforcing processes. Thus growth has an agglomerative effect of its own, in addition to those already identified by Krugman and Venables. This entails the existence for governments of a trade-off between regional equity and efficiency. These results are consistent with two stylized facts: the positive correlation between agglomeration and growth of economic activities; and the resemblance between the geography of innovation and the geography of production which is best illustrated by the crucial role of cities in both activities. Peter Neary (University College Dublin and CEPR) stressed the need for a better comprehension of agglomeration forces through finer modelling of market structures, and of consumers’ and firms’ decision processes. Richard Baldwin wondered about the welfare implications of the resulting shift of the equilibria.

The same issue was examined empirically at a national level by Dan Ben-David (Tel Aviv University and CEPR) who presented work with A K M Atiqur Rahman (University of Houston) on ‘Technological Convergence and International Trade’. Catching-up phenomena, such as the adoption of existing technologies by relatively underdeveloped countries, constitute an avenue through which convergence between countries might occur. As the knowledge dissemination behind this process is facilitated by exchanges and increased competition, trade might constitute a mechanism for reducing the degree of disparity among countries. However, income gaps between most countries in the world show little evidence of falling over time; in fact, they often increase. Even among the wealthier countries, which should have the social capability to adopt first-best technology, no evidence of significant convergence can be found, whether in terms of income, total factor productivity or capital stock. Less than one quarter of randomly determined groupings of these countries display significant convergence. When these countries are grouped on the basis of trade relations (whether imports or exports), however, the authors find that there is strong evidence of convergence in levels of output and TFP, though not, apparently, in capital stocks. The primary channel through which trade leads to income convergence thus seems to be the technology route.

The causality links between income convergence and increased trade relations were the focus of general discussion on the paper. Gilles Duranton (LSE) observed that the existence of technological spillovers, linked to scale effects, was not observed at the world level; therefore, trade may be capturing proximity effects. On this point, Alisdair Smith (University of Sussex and CEPR) stressed the difference between trade liberalization and formation of blocs, such as the EEC.

Vernon Henderson presented ‘Urban Growth’, written with Duncan Black (both Brown University). Their paper modelled and examined empirically the evolution of cities in an economy. Twentieth-century urban evolution in the United States has been characterized by parallel growth of cities of different sizes and types, maintaining – with entry of new cities – a stable relative size distribution of cities over time. Cities also appeared to have evolved with differing average levels of human capital. National population growth has been translated into increased city sizes because of scale economies and knowledge spillovers, and because of increasing commuting costs. Thus individual city sizes have grown with human capital accumulation. Because per capita income and human capital levels differ across city types by production process and the benefits of spillovers and human investments, observed inequalities arise across cities among otherwise identical individuals. After stressing the empirical value of this study, Gilles Duranton noted that growth in population was necessary to urban growth as the returns to accumulable factors were declining over time.