Does Geographical Agglomeration Foster Economic Growth? And Who Gains and Looses From It?

Jacques Thisse and Masahisa Fujita

No 3135, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper proposes a two-region model of endogenous growth, which is a natural combination of a core-periphery model a la Krugman and of a model of endogenous growth a la Grossman/Helpman/Romer. Specifically, we add to the core-periphery model an R&D sector that uses skilled labour to create new varieties for the modern sector, while forward-looking migration behaviour is introduced. The innovation activity in the R&D sector involves knowledge externalities among skilled workers. Our analysis suggests that the presence of such a sector reinforces the tendency toward agglomeration, and supports the idea that the additional growth spurred by agglomeration may lead to a Pareto-dominant outcome such that when the economy moves from dispersion to agglomeration, innovation follows a much faster pace. As a consequence, even those who stay put in the periphery are better off than under dispersion, provided that the growth effect triggered by the agglomeration is strong enough.

Keywords: Agglomeration; Regional growth; Endogenous growth; Patent (search for similar items in EconPapers)
JEL-codes: F12 O40 R11 (search for similar items in EconPapers)
Date: 2002-01
New Economics Papers: this item is included in nep-dev and nep-geo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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