Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Looses from it?

46 Pages Posted: 8 Feb 2002

See all articles by Masahisa Fujita

Masahisa Fujita

Kyoto University - Institute of Economic Research

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Date Written: January 2002

Abstract

This Paper proposes a two-region model of endogenous growth, which is a natural combination of a core-periphery model a la Krugman and of a model of endogenous growth a la Grossman/Helpman/Romer. Specifically, we add to the core-periphery model an R&D sector that uses skilled labour to create new varieties for the modern sector, while forward-looking migration behaviour is introduced. The innovation activity in the R&D sector involves knowledge externalities among skilled workers. Our analysis suggests that the presence of such a sector reinforces the tendency toward agglomeration, and supports the idea that the additional growth spurred by agglomeration may lead to a Pareto-dominant outcome such that when the economy moves from dispersion to agglomeration, innovation follows a much faster pace. As a consequence, even those who stay put in the periphery are better off than under dispersion, provided that the growth effect triggered by the agglomeration is strong enough.

Keywords: Agglomeration, regional growth, endogenous growth, patent

JEL Classification: F12, O40, R11

Suggested Citation

Fujita, Masahisa and Thisse, Jacques-François, Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Looses from it? (January 2002). CEPR Discussion Paper No. 3135. Available at SSRN: https://ssrn.com/abstract=299600

Masahisa Fujita (Contact Author)

Kyoto University - Institute of Economic Research ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto 606-8501
Japan
+81 75 753 7122 (Phone)
+81 75 753 7198 (Fax)

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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