Working Paper: CEPR ID: DP4600
Authors: Gianmarco I.P. Ottaviano; Frédéric Robert-Nicoud
Abstract: This Paper takes a broader look at how vertical linkages can trigger the spatial agglomeration of economic activity in a ?new economic geography? (NEG) set-up. First, it formally establishes the key positive features of a wide class of vertical-linkage models without resorting to numerical simulations. Second, it proposes an analytically solvable model of this class. Third, it addresses the important though neglected issue of whether in such models market forces yield too much or too little agglomeration. It shows that, in terms of positive implications, vertical-linkage models are identical to migration models once considered in their ?natural? state space. Important differences arise, however, in terms of normative implications in the absence of interregional transfers: in migration models agglomeration is necessarily bad for people stuck in lagging regions; in the vertical-linkage models it can be good for everybody as it delivers richer product variety.
Keywords: New Economic Geography; Vertical Linkages; Welfare Analysis
JEL Codes: F12; F15; F21; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| vertical linkages (L14) | spatial agglomeration (R32) |
| strong vertical linkages (Y80) | beneficial outcomes for all regions (R11) |
| migration models (F22) | detrimental agglomeration for lagging regions (R11) |
| strength of vertical linkages (L14) | positive outcomes from agglomeration (R11) |
| low trade barriers (F19) | positive outcomes from agglomeration (R11) |
| vertical-linkage models (F12) | significant economic clustering (R32) |
| migration models (F22) | significant economic clustering (R32) |