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Modelling of Agglomeration and Dispersion in RHOMOLO

Francesco Di Comite and d'Artis Kancs

No JRC81349, JRC Research Reports from Joint Research Centre (Seville site)

Abstract: The dynamic spatial general equilibrium model RHOMOLO with endogenous firm location incorporates multiple sources of agglomeration and dispersion. Agglomeration is driven mainly by increasing returns to scale and localised externalities; dispersion by costly trade and imperfect competition. In RHOMOLO, three mechanisms interact in determining the equilibrium spatial distribution of agents: capital mobility, labour mobility and vertical linkages as captured by costly input-output trade. While households choose their location based on real income differences, firms' spatial equilibrium is determined by the inter-regional equalisation of returns on capital. Illustrative simulation results suggest that in the EU labour mobility has the tendency to magnify the home market effect and the market access effect. In contrast, the market crowding effect seems to dominate the market access effect for capital mobility and vertical linkages. These results are in line with the theoretical literature, where the endogenous location mechanism of labour mobility contains two agglomeration forces and one dispersion force, whereas the endogenous location mechanisms of capital mobility and vertical linkages contain one agglomeration force and one dispersion force.

Keywords: New economic geography; endogenous location; agglomeration; dispersion; general equilibrium; economic modelling. (search for similar items in EconPapers)
JEL-codes: C63 C68 D58 F1 F12 H41 O1 O31 O40 R13 R3 R4 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2014-10
New Economics Papers: this item is included in nep-ure
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Journal Article: Modeling agglomeration and dispersion in space: The role of labor migration, capital mobility and vertical linkages (2018) Downloads
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