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Title:Home goods and regional price indices: a perspective from new economic geography PDF Logo
Authors:Südekum, Jens
Issue Date:2001
Series/Report no.:Diskussionsbeiträge aus dem Volkswirtschaftlichen Seminar der Universität Göttingen 109
Abstract:In standard models of New Economic Geography the overall regional price index in the centre is lower than in the periphery, because trade in manufacturing imposes transportation costs whereas trade in agriculture is assumed to be costless. Since real world observations suggest higher overall CPIs in the centre than in the periphery, this paper presents a model where a home goods sector is added. The model is able to explain a sustainable core-periphery structure with higher aggregate CPI in the centre. This structure can emerge endogenously out of the system itself and does not need to exist initially. Hence, the standard model of New Economic Geography can gain realism by the modification proposed in this paper.
Document Type:Working Paper
Appears in Collections:Diskussionsbeiträge aus dem Volkswirtschaftlichen Seminar, Universität Göttingen

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