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Localized technological externalities and the geographical distribution of firms

Giulio Bottazzi and Pietro Dindo

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: Using an analytically solvable general equilibrium model, we study how the distribution of economic activities is affected by the trade-off between pecuniary externalities, as dependent on transportation costs, and localized technological externalities, as dependent on inter-regional spillovers. We model localized technological externalities as having a cost saving effect that can be interpreted as a technological advantage, like the presence of interfirms knowledge spillovers. Under the assumption of capital mobility and labour immobility, we show that whereas decreasing transportation costs, i.e. promoting market openness, leads to sudden agglomeration, increasing inter-regional spillovers, i.e. promoting technological openness, favors a smoother transition between different levels of firms concentration and ultimately leads to a less uneven distribution of welfare.

Keywords: New Economic Geography; Agglomeration; Footloose capital models; Technological externalities; Market and technological openness (search for similar items in EconPapers)
JEL-codes: F12 F15 O3 R12 (search for similar items in EconPapers)
Date: 2008-04-24
New Economics Papers: this item is included in nep-geo, nep-net and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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