Working Paper: CEPR ID: DP1749
Authors: Richard E. Baldwin; Rikard Forslid
Abstract: This paper presents a model in which long-run growth and industrial location are jointly endogenous. Specifically, it introduces Romer-Grossman-Helpman endogenous growth into Krugman?s core-periphery model with footloose labour. The paper focuses on stability of the symmetric equilibrium, showing that growth is a powerful destabilising force. For instance, even with prohibitive trade barriers, the symmetric equilibrium is unstable as long as workers? discount rates are not too high. It also shows that inter-regional learning spillovers are a stabilizing force. Finally, the paper shows that agglomeration of industry is favourable to growth in both regions, so positive growth effects might offset the well-known static welfare loss that the periphery experiences when the core-periphery outcome occurs.
Keywords: endogenous growth; economic geography
JEL Codes: F10; F12; F15; F20; 040; 041
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Endogenous growth (O40) | destabilization of symmetric equilibrium (C62) |
| Growth (O00) | industrial location (R32) |
| Industrial agglomeration (R32) | growth (O40) |
| Growth (O00) | industrial agglomeration (R32) |
| Interregional knowledge spillovers (O36) | stabilization of symmetric equilibrium (C62) |
| Geographic agglomeration (R12) | real income growth (O49) |
| Real income growth (O49) | mitigation of static welfare losses in peripheral regions (R13) |