Working Paper: CEPR ID: DP3386
Authors: Takatoshi Tabuchi; Jacques-François Thisse; Daozhi Zeng
Abstract: 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.
Keywords: agglomeration; city; multiplicity of equilibria; multiregional system; transport costs; urban costs
JEL Codes: F12; L13; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decrease in trade costs (F19) | Agglomeration process (R32) |
| Agglomeration process (R32) | Large cities attract workers and firms from smaller cities (R23) |
| Large cities attract workers and firms from smaller cities (R23) | Reduction in size of smaller cities (R12) |
| Further decrease in trade costs (F19) | Large cities begin to lose workers and firms (R23) |
| Large cities begin to lose workers and firms (R23) | Growth of smaller cities (R11) |
| Intermediate levels of trade costs (F12) | Medium-sized cities lose workers (J69) |
| Intermediate levels of trade costs (F12) | Large and small cities grow (R12) |
| Trade costs (F19) | Changes in urban costs (R11) |
| Changes in urban costs (R11) | Size and number of cities (R12) |