Faculty of Economics and Business Administration Publications Database

Transport Costs, Intermediate Goods, and Localized Growth

Volume: 26
Number: 6
Pages: 671 - 695
Month: December
ISSN-Print: 0166-0462
Link External Source: Online Version
Year: 1996
Keywords: Regional growth; Economic geography; Factor mobility
Abstract: This paper presents a dynamic, two-regional, general equilibrium model in which interregional production and trade patterns are endogenously determined. Localizedgrowth stems from the geographical concentration of an industrial sector exhibiting permanent productivity increases. Geographical concentration is a result of the interaction between local market size and local competition in the differentiated input industry. Regional factor endowment with an immobile factor is decisive for the long-run specialization, trade and growth patterns between the regions if large endowment differences prevail. With equal-sized regions, multiple equilibria exist. Furthermore, we argue that integration might lead to increasing regional concentration of production and innovation.