Premium
Growth and Agglomeration
Author(s) -
Martin Philippe,
Ottaviano Gianmarco I. P.
Publication year - 2001
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00141
Subject(s) - economies of agglomeration , externality , economic geography , production (economics) , core (optical fiber) , transaction cost , business , urban agglomeration , industrial organization , economics , economic system , economic growth , microeconomics , engineering , telecommunications
This article presents a model in which growth and geographic agglomeration of economic activities are mutually self‐reinforcing processes. Economic agglomeration in one region spurs growth because it reduces the cost of innovation in that region through a pecuniary externality due to transaction costs. Growth fosters agglomeration because, as the sector at the origin of innovation expands, new firms tend to locate close to this sector. Agglomeration implies that all innovation and most production activities take place in the core region. However, as new firms are continuously created in the core, some relocate their production to the periphery.