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Structural Change and Growth in a NEG Model

Authors


  • We would like to thank Yasusada Murata, Luca Deidda and all the participants at the seminar in Cagliari, and at the conferences in Saint Petersbourg (DEGIT), Barcelona (ERSA) and Miami (NARSC).

Tel: +390706753765; E-mail: fcerina@unica.it

Abstract

This paper presents a New Economic Geography model of structural change, agglomeration and growth. Assuming a non-homothetic preference structure, our results show that a progressive reduction of trade costs allows the economy to pass from a pre-industrialized to an industrialized stage and then, within the latter, from a dispersed to an urbanized regime. However, the introduction of capital accumulation and the dynamic setting of our model opens the door to a richer set of implications. First, an additional stage is introduced as, for some intermediate values of trade costs, a multiple equilibria regime emerges with simultaneously stable symmetric and core-periphery equilibria. Second, the introduction of non-homotheticity introduces a new channel through which growth is affected by trade costs and agglomeration. In particular, integration is always growth-enhancing while agglomeration is growth-detrimental.

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