Working Paper: CEPR ID: DP9046
Authors: Gianmarco Ottaviano
Abstract: This paper studies how firm heterogeneity in terms of productivity affects the balance between agglomeration and dispersion forces in the presence of pecuniary externalities through a selection model of monopolistic competition with endogenous markups. It shows that firm heterogeneity matters. However, whether it shifts the balance from agglomeration to dispersion or the other way round depends on its specific features along the two defining dimensions of diversity: `richness' and `evenness'. Accordingly, the role of firm heterogeneity in selection models of agglomeration can not be fully understood without paying due attention to various moments of the underlying firm productivity distribution.
Keywords: agglomeration; economic geography; heterogeneity; selection; trade
JEL Codes: F12; R11; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm heterogeneity (D21) | balance of agglomeration and dispersion forces (F12) |
| richness (D31) | chance of low productivity draws (O49) |
| evenness (D30) | likelihood of high productivity draws (J24) |
| selection among heterogeneous firms (L29) | partial agglomeration (R11) |
| trade barriers (F14) | stability of equilibria (C62) |
| market size (L25) | competition (L13) |