Working Paper: NBER ID: w29592
Authors: Konstantin Kucheryavyy; Gary Lyn; Andrs Rodriguez-Clare
Abstract: In this paper we characterize the set of equilibria in a generalized version of the canonical two-region economic geography model that nests the class of models in Allen and Arkolakis (2014) as well as Krugman (1991) and features an input-output loop. We provide sufficient conditions for uniqueness of equilibria that — in contrast to the well-know result in Allen and Arkolakis (2014) — allow for positive agglomeration externalities, which concentrate economic activity, even in the absence of congestion effects, which disperse it, and highlight the key role played by three additional parameters: the trade elasticity, which regulates the strength of the dispersion force associated with the decline in the terms of trade caused by migration into a region; trade costs, which weaken this dispersion force by limiting trade across regions; and the importance of the agricultural sector, which pushes against agglomeration forces in manufacturing.
Keywords: Spatial Equilibria; Economic Geography; Trade Elasticity; Agricultural Sector; Agglomeration Externalities
JEL Codes: F10; F20; R0; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| positive agglomeration externalities (R32) | unique equilibria (C62) |
| trade elasticity (H30) | likelihood of unique equilibria (C62) |
| trade costs (F19) | likelihood of unique equilibria (C62) |
| agricultural sector (Q12) | agglomeration forces in manufacturing (L69) |