Growth and Economic Geography

  • Uwe Walz
Part of the Contributions to Economics book series (CE)


In the introductory section, we have argued that an analysis of the long-run implications of regional integration has to be based on an endogenous regional growth model. But how should the basic structure of such a model look?


Physical Capital Economic Geography Final Good Intermediate Good Interior Solution 
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  1. 1.
    Other recent models of localized growth employ the notion of externalities in the aggregate capital stock (see Palivos/Wang (1996)) and population growth (see Black/Henderson (1999)). By being more closely focused on urban or city growth, these approaches are, however, less suitable to our objective of analyzing long-run effects of regional integration.Google Scholar
  2. 3.
    For a recent and extensive survey of the economics of agglomeration as well as the recent literature see Fujita/Thisse (1996).Google Scholar
  3. 5.
    Walz (1996c) allows for asymmetric countries in this set-up.Google Scholar
  4. 8.
    For a derivation, see e.g. Barro/Sala-i-Martin (1995).Google Scholar
  5. 9.
    Using the notion of differentiated producer goods rather than differentiated consumer goods has various advantages. First, it reflects the fact that the volume of trade in differentiated intermediates is much more prominent than in consumer goods (cf. Ethier (1982)). Secondly, this route allows for an analysis of the relationship of location choices in vertically structured sectors. Thirdly, and most important, using the notion of differentiated consumer goods would complicate the analysis in the presence of utility-maximizing migration decisions immensely. Mobile households have an incentive to locate in the country with a larger number of locally produced differentiated consumer goods (cf. Stahl (1983)). In our dynamic general equilibrium setting, this drives a wedge between wages for skilled labor in the two countries which changes over time. Furthermore, since mobile workers receive income from their asset holdings in addition to their labor income holdings, the functional distribution of assets is decisive for the location of mobile workers. In order to keep the analysis tractable, we have chosen to look at the case of differentiated intermediate producer goods and services. But, in contrast to Grossman/Helpman (1991a) who abstract from transport costs and factor mobility, our analysis of the intermediate product case does not carry over straightforwardly to the differentiated consumer good case.Google Scholar
  6. 11.
    For a detailed discussion of this point see Barro/Sala-i-Martin (1992).Google Scholar
  7. 12.
    Walz (1995a) contains a detailed analysis of costly innovation and imitation processes.Google Scholar
  8. 13.
    See for an analysis of the relation between growth and MNCs, Baldwin et al. (1998) and Walz (1997c).Google Scholar
  9. 15.
    This hypothesis is discussed in Hansen (1990). See for empirical tests of the importance of local asset-sharing von Hagen/Hammond (1994).Google Scholar
  10. 18.
    For a detailed discussion, see Walz (1996c).Google Scholar
  11. 19.
    This general insight was pointed out and derived rigorously for the first time in Rebelo (1990).Google Scholar
  12. 20.
    See Walz (1996c) for a framework in which asymmetric factor endowments of regions can give rise to the uniqueness of the long-run equilibrium.Google Scholar
  13. 21.
    Matsuyama (1995) provides an extensive survey of models predicting cumulative processes as well as the basic mechanism behind them.Google Scholar

Copyright information

© Physica-Verlag Heidelberg 1999

Authors and Affiliations

  • Uwe Walz
    • 1
  1. 1.Department of EconomicsUniversity of TübingenTübingenGermany

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