Engel's law, Petty's law, and agglomeration

Yasusada Murata

Journal of Development Economics, 2008, vol. 87, issue 1, 161-177

Abstract: This paper presents a model of structural change and agglomeration. A decline in transportation costs, by enhancing consumers' purchasing power, leads to Engel's law of the demand shift from agricultural to non-agricultural goods. At the same time, the decline in transportation costs, by enlarging the extent of the market for non-agricultural goods, induces Petty's law of the labor reallocation from agriculture to non-agricultural activities. These structural transformations weaken dispersion forces given by farmers tied to the land, whereas they strengthen agglomeration forces generated by footloose non-agricultural workers. Thus, a substantial decline in transportation costs gives rise to agglomeration of non-agricultural activities.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:87:y:2008:i:1:p:161-177

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