Transitional Dynamics in a Model of Economic Geography
1993 Lectures and Complex Systems, Eds. L. Nadel and D. L. Stein, Santa Fe Institute Studies in the Sciences of Complexity, Lecture Volume VI, New York: Addison Wesley, 1995; pp. 415-430.
9 Pages Posted: 3 Nov 2014
Date Written: December 1, 1993
We build upon previous work by Dixit and Stiglitz (1977) and Krugman (1990) to introduce a model of economic geography in which agglomeration of production, a zero-profit competitive equilibrium, and an endogenously-driven industrial revolution arise out of the profit-maximizing choices made by firms and the utility-maxmizing choices made by workers/consumers. We further describe results that imply -- contrary to conclusions of much analytical work on business cycles -- that "sticky" wages actually appear to stabilize, rather than destabilize output and employment in a Krugman-type model of economic geography.
Keywords: economic geography, agglomeration, transitional dynamics, simulation
JEL Classification: C61, R10, R30
Suggested Citation: Suggested Citation