Working Paper: CEPR ID: DP4326
Authors: Frdric Robert-Nicoud
Abstract: This paper shows that the mathematical structure of the most widely used New Economic Geography models is the same, irrespective of the underlying agglomeration mechanism assumed (factor migration, input-output linkages, endogenous capital accumulation). This enables us to provide analytical proofs to three important and related results in the field. First, standard models display at most two interior steady states beyond the symmetric one; we refer to the latter steady state as 'dispersion' because the manufacturing industry is evenly spread across locations. Second, when interior, asymmetric steady-states exist they are unstable. The final result of this paper relates to the corner steady states of the model whereby the manufacturing sector is clustered in a single location; we refer to such a steady states as 'agglomeration'. I establish that both agglomeration and dispersion are stable steady state for some economically meaningful parameter values of the model. This paper also stresses the empirical implications of the most important results derived in this study.
Keywords: Hysteresis; Natural State Space; New Economic Geography; Number of Steady States; Stability
JEL Codes: C62; D58; F12; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| parameter values (D46) | existence of stable equilibria (C62) |
| agglomeration (R11) | stability of equilibria (C62) |
| asymmetric interior steady states (C62) | instability (C62) |
| corner steady states (C62) | agglomeration (R11) |
| transportation costs (L91) | agglomeration forces (R32) |
| factor mobility (J62) | agglomeration forces (R32) |