Trade Costs Versus Urban Costs

37 Pages Posted: 2 Sep 2004

See all articles by Jean Cavailhès

Jean Cavailhès


Carl Gaigne

French National Institute for Agricultural Research (INRA) - UMR 1302 SMART

Jacques-François Thisse

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

Date Written: June 2004


We analyze how the interplay between urban costs, wage wedges and trade costs may affect the inter-regional location of firms, as well as the intra-urban location, within the central business district or in a secondary employment centre (SEC) of the selected region. In this way, we investigate, on the one hand, how trade may affect the internal structure of cities and, on the other hand, how decentralizing the production and consumption of goods to subcentres changes the intensity of trade by allowing large metropolitan areas to maintain their predominance. We show that, despite low commuting costs, SECs may emerge when the urban population is large and communication technologies are efficient, two features that seem to characterize modern economies. Moreover, when trade costs fall from high levels, the economy moves gradually from dispersion to agglomeration, favoring the formation of SECs. In an integrating world, however, the centre of a small monocentric city could be more attractive than subcentres of large polycentric cities. Nevertheless, the core retains its predominance through the relative growth of its main centre, which occurs at the expense of its subcentres.

Keywords: City structure, polycentric city, commuting costs, trade costs, relocation

JEL Classification: F12, F22, R12, R14

Suggested Citation

Cavailhes, Jean and Gaigne, Carl and Thisse, Jacques-François, Trade Costs Versus Urban Costs (June 2004). CEPR Discussion Paper No. 4440. Available at SSRN:

Jean Cavailhes

INRA - CESAER ( email )

26 Bd Dr Petitjean
Dijon Cedex, 21079

Carl Gaigne

French National Institute for Agricultural Research (INRA) - UMR 1302 SMART ( email )

4 allée Adolphe Bobierre
CS 61103
Rennes Cedex, 35011

Jacques-François Thisse (Contact Author)

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348

Centre for Economic Policy Research (CEPR)

United Kingdom

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