Agglomeration and Economic Geography

50 Pages Posted: 20 May 2003

See all articles by Gianmarco I.P. Ottaviano

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Jacques-François Thisse

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

Date Written: March 2003

Abstract

Peaks and troughs in the spatial distributions of population, employment and wealth are a universal phenomenon in search of a general theory. Such spatial imbalances have two possible explanations. In the first, uneven economic development can be seen as the result of the uneven distribution of natural resources. This is sometimes called 'first nature' and refers to exogenously given characteristics of different sites. It falls short of providing a reasonable explanation of many other clusters of activities, however, which are much less dependent on natural advantage. The aim of geographical economics is precisely to understand what are the economic forces that, after controlling for first nature, account for 'second nature', which emerges as the outcome of human beings' actions to improve upon the first one. Specifically, geographical economics asks what are the economic forces that can sustain a large permanent imbalance in the distributions of economic activities. In this Paper, we focus on the so-called 'new economic geography' approach. After having described some of the main results developed in standard location theory, we use a unified framework to survey the home market effect as well as core-periphery models. Geographers have criticized these models because they accounts for some spatial costs while putting others aside without saying why. Furthermore, core-periphery models also exhibit some extreme features that are reflected in their bang-bang outcomes. We thus move on by investigating what the outcomes of core-periphery models become when we account for a more complete and richer description of the spatial aspects that these models aim at describing. We conclude by suggesting new lines of research.

Keywords: Agglomeration, economic geography, monopolistic competition, increasing returns, transport costs

JEL Classification: F12, F16, R12

Suggested Citation

Ottaviano, Gianmarco I.P. and Thisse, Jacques-François, Agglomeration and Economic Geography (March 2003). CEPR Discussion Paper No. 3838. Available at SSRN: https://ssrn.com/abstract=410026

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

Jacques-François Thisse (Contact Author)

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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