Intermediate goods and the spatial structure of an economy

Institute of Economic Research, Kyoto University, Sakyo-ku, Kyoto 606-8501, Japan; Institute of Developing Economies, Wakaba 3-2-2, Mihama-ku, Chiba 261-8545, Japan; Revised 15 August 2000. Accepted 10 October 2000. Available online 9 February 2001.
Regional Science and Urban Economics 01/2001; DOI: 10.1016/S0166-0462(00)00066-1
Source: RePEc

ABSTRACT We develop a monopolistic competition model of spatial economy in which manufacturing requires a large variety of intermediate goods. The economy yields two types of monocentric configurations: an integrated city equilibrium (I-specialized city equilibrium) when transaction costs of intermediate goods are high (low). In the former, both manufacturing and intermediate sectors agglomerate in a single city. In the latter, the city is specialized in the provision of intermediate goods. When the economy is in an integrated city equilibrium, it is in a primacy trap such that population growth alone never leads to the formation of new cities.

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