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A dynamic spatial model of rural-urban transformation with public goods

Dan Biller, Luis Andres and David Cuberes ()

No 7051, Policy Research Working Paper Series from The World Bank

Abstract: This paper develops a dynamic model that explains the pattern of population and production allocation in an economy with an urban location and a rural one. Agglomeration economies make urban dwellers benefit from a larger population living in the city and urban firms become more productive when they operate in locations with a larger labor force. However, congestion costs associated with a too large population size limit the process of urban-rural transformation. Firms in the urban location also benefit from a public good that enhances their productivity. The model predicts that in the competitive equilibrium the urban location is inefficiently small because households fail to internalize the agglomeration economies and the positive effect of public goods in urban production.

Keywords: Economic Theory&Research; Population Policies; Urban Housing and Land Settlements; National Urban Development Policies&Strategies; Labor Policies (search for similar items in EconPapers)
Date: 2014-10-01
New Economics Papers: this item is included in nep-cse and nep-ure
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Working Paper: A Dynamic Spatial Model of Rural-Urban Transformation with Public Goods (2015) Downloads
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