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

25 Pages Posted: 9 Jun 2003

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)

Abstract

This paper proposes a two-region model of endogenous growth, which is a natural combination of a core-periphery model Krugman and an endogenous growth model Grossman/Helpman/Romer. The innovation activity in the R&D sector involves knowledge externalities among skilled workers. Our analysis 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 follws 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.

JEL Classification: F43, O18, R11

Suggested Citation

Fujita, Masahisa and Thisse, Jacques-François, Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Loses from it?. Japanese Economic Review, Vol. 54, pp. 121-145, June 2003. Available at SSRN: https://ssrn.com/abstract=411125

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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