Agglomeration and Growth: The Effects of Commuting Costs

39 Pages Posted: 28 Oct 2008

Date Written: October 17, 2008

Abstract

We present a model of industrial location and endogenous growth with congestion costs. According to the interplay between knowledge spillovers and commuting costs, we are able to obtain both a Krugman-type and a bell-shaped agglomeration outcome. In the first case, the economy experiences a permanent income inequality in the steady state and income divergence in the transitional dynamics. In the second case, we observe an enlargement of the industrial core of the economy with a strong catching up by the periphery. Welfare analysis shows that congestion create (in the bell-shaped agglomeration case) a negative welfare effect on peripheral unskilled workers and renders the agglomerated equilibrium Pareto inferior to dispersion.

Keywords: congestion, endogenous growth, migration

JEL Classification: R11, O11

Suggested Citation

Accetturo, Antonio, Agglomeration and Growth: The Effects of Commuting Costs (October 17, 2008). Bank of Italy Temi di Discussione (Working Paper) No. 688, Available at SSRN: https://ssrn.com/abstract=1290543 or http://dx.doi.org/10.2139/ssrn.1290543

Antonio Accetturo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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