Agglomeration patterns in a multi-regional economy without income effects

• Published in: Economic theory Vol. 66; no. 4; pp. 863 - 899
• Main Authors: Gaspar, José M., Castro, Sofia B. S. D., Correia-da-Silva, João
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer 01-12-2018; Springer Berlin Heidelberg; Springer Nature B.V
• Subjects: Agglomeration; Center and periphery; Economic models; Economic theory; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Game Theory; Microeconomics; Public Finance; RESEARCH ARTICLE; Social and Behav. Sciences; Spatial analysis; Workers; R10; R12; R23; Welfare; Footloose entrepreneur; Core–periphery model; Multiple regions
• ISSN: 0938-2259; 1432-0479
• DOI: 10.1007/s00199-017-1065-9

We study the long-run spatial distribution of industry using a multi-region core–periphery model with quasi-linear log utility Pflüger (Reg Sei Urban Econ 34:565–573, 2004). We show that a distribution in which industry is evenly dispersed among some of the regions, while the other regions have no industry, cannot be stable. A spatial distribution where industry is evenly distributed among all regions except one can be stable, but only if that region is significantly more industrialized than the other regions. When trade costs decrease, the type of transition from dispersion to agglomeration depends on the fraction of workers that are mobile. If this fraction is low, the transition from dispersion to agglomeration is catastrophic once dispersion becomes unstable. If it is high, there is a discontinuous jump to partial agglomeration in one region and then a smooth transition until full agglomeration. Finally, we find that mobile workers benefit from more agglomerated spatial distributions, whereas immobile workers prefer more dispersed distributions. The economy as a whole shows a tendency towards overagglomeration for intermediate levels of trade costs.