Agglomeration and Regional Costs of Living

15 Pages Posted: 7 Jan 2007

See all articles by Jens Suedekum

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Abstract

Standard models of the new economic geography predict that costs of living are lower in the core than in the periphery. But in reality they tend to be higher in agglomeration areas, mainly because of regional differences in housing costs. In this paper, we add a home goods sector to the seminal NEG model of Krugman (1991). We show that a core-periphery structure can endogenously emerge in which the core is the more expensive area. This result has an important normative implication. Since higher costs of living imply falling real wages if there is no nominal wage premium, it is not desirable for everybody to live in the core region.

Suggested Citation

Südekum, Jens, Agglomeration and Regional Costs of Living. Journal of Regional Science, Vol. 46, No. 3, pp. 529-543, August 2006, Available at SSRN: https://ssrn.com/abstract=918591 or http://dx.doi.org/10.1111/j.1467-9787.2006.00451.x

Jens Südekum (Contact Author)

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

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Bonn, D-53072
Germany

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