Firm Formation and Agglomeration Under Monopolistic Competition

Tinbergen Institute Discussion Paper 13-134/VIII

34 Pages Posted: 7 Sep 2013

See all articles by Stephan Brunow

Stephan Brunow

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Peter Nijkamp

Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: September 6, 2013

Abstract

In the presence of agglomeration economies one might expect a relocation and concentration of industries. Then firm start-up activities may be assumed to reveal those effects. We introduce an empirical testable model inspired by the New Economic Geography and human capital externalities literature. The novelty of this paper is that it derives a measure of agglomeration economies founded on microeconomic analysis based on households' and firms' maximization behavior, namely the real market potential. Besides agglomeration forces, dispersion and human capital effects can be separated and explicitly controlled for. The paper sheds new light on the general mechanisms of intra-industrial agglomeration forces because it explicitly considers the regional distribution of economic activities. It offers clear evidence for the empirical relevance of the New Economic Geography.

Keywords: New economic geography, agglomeration, externalities, firm formation

JEL Classification: L13, O41, R11, R3

Suggested Citation

Brunow, Stephan and Nijkamp, Peter, Firm Formation and Agglomeration Under Monopolistic Competition (September 6, 2013). Tinbergen Institute Discussion Paper 13-134/VIII, Available at SSRN: https://ssrn.com/abstract=2321625 or http://dx.doi.org/10.2139/ssrn.2321625

Stephan Brunow (Contact Author)

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

HOME PAGE: http://www.iab.de

Peter Nijkamp

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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