Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68130
Authors: 
Barde, Sylvain
Year of Publication: 
2007
Series/Report no.: 
Department of Economics Discussion Paper, University of Kent 07,01
Abstract: 
This paper attempts to model directly the folk theorem of spatial economics, according to which increasing returns to scale are essential for understanding the geographical distributions of activity. The model uses the simple structure of most New Economic Geography papers, with two identical regions, a costlessly traded agricultural sector and a manufacturing sector subject to iceberg costs. This simple setting isolates IRS in manufacturing production function as the only potential agglomerating force. This implies that an unstable symmetric equilibrium means IRS cause agglomeration. The central result is that while a CRS manufacturing sector will always stay at the symmetric equilibrium, the presence of IRS in manufacturing causes the symmetric equilibrium to become unstable and agglomeration becomes the only long run equilibrium for the system.
Subjects: 
Agglomeration
increasing returns to scale
imperfect competition
JEL: 
R10
R12
F12
Document Type: 
Working Paper

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