Knowledge Spillovers, Black Holes and the Equilibrium Location of Vertically Linked Industries

Posted: 22 Dec 2009

See all articles by Sylvain Barde

Sylvain Barde

University of Kent - School of Economics

Date Written: January 2010

Abstract

Using a generalized version of the Venables (International Economic Review, 37: 341-359) model, this article explores the relative locations of two vertically linked sectors with knowledge spillovers. Analytical investigation shows that the dynamic properties of the Venables model are significantly affected by the presence of spillovers. In particular, the own-cost reduction effects at low transport costs can be so strong that runaway agglomeration dynamics appear in a manner consistent with the black hole concept found in the literature. However, due to the decay of information over space, these black hole dynamics are endogenous to the model and disappear when transport costs are high enough. Importantly, the location predictions obtained in simulations of the model are consistent with the empirical finding that industrials sector that benefit from spillovers are typically more agglomerated than sector that do not benefit from such spillovers.

Keywords: knowledge spillovers, agglomeration, location of economic activity

JEL Classification: F12, R11, R12, O30

Suggested Citation

Barde, Sylvain, Knowledge Spillovers, Black Holes and the Equilibrium Location of Vertically Linked Industries (January 2010). Journal of Economic Geography, Vol. 10, Issue 1, pp. 27-53, 2010, Available at SSRN: https://ssrn.com/abstract=1525257 or http://dx.doi.org/lbp014

Sylvain Barde (Contact Author)

University of Kent - School of Economics ( email )

CT2 7NP
United Kingdom

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