Agglomeration and Regional Costs of Living
15 Pages Posted: 7 Jan 2007
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Competing for Capital in a 'Lumpy' World
By Guttorm Schjelderup, Hans Jarle Kind, ...
-
Agglomeration and Tax Competition
By Rainald Borck and Michael Pflüger
-
A Simple, Analytically Solvable Chamberlinian Agglomeration Model
-
Firm Location Decisions, Regional Grants and Agglomeration Externalities
By Rachel Griffith, Michael P. Devereux, ...
-
Regional Specialization, Urban Hierarchy, and Commuting Costs