Agglomeration Economies, Division of Labour and the Urban Land-Rent Escalation: A General Equilibrium Analysis of Urbanisation

Guang-Zhen Sun () and Xiaokai Yang

Australian Economic Papers, 2002, vol. 41, issue 2, pages 164-84

Abstract: A general equilibrium model with increasing return to labour specialisation and economies of transaction agglomeration is developed to address the residential land-rent escalation associated with the urbanisation process, which is in turn endogenised as a result of the evolution of the division of labour. The interplay among the geographical pattern of transactions, trading efficiency and the network size of the division of labour plays a crucial role in our story of urbanisation. We show that: as transaction conditions are improved, the equilibrium level of division of labour and individuals specialisation levels increase; the urban land-rent increases absolutely as well as relative to that in the rural area, the relative per capita lot size of residence in the urban and rural areas decreases; the diversity of occupations in the urban area and the population share of urban residents increase; and the productivity of all goods and per capita real income increase. Copyright 2002 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

Date: 2002

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