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AGGLOMERATION AND REGIONAL COSTS OF LIVING *
Author(s) -
Suedekum Jens
Publication year - 2006
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.2006.00451.x
Subject(s) - economies of agglomeration , core (optical fiber) , economics , cost of living , wage , normative , real wages , standard of living , falling (accident) , economic geography , labour economics , microeconomics , economic growth , market economy , philosophy , materials science , epistemology , composite material , medicine , environmental health
Standard models of the new economic geography predict that costs of living are lower in the core than in the periphery. But in reality they tend to be higher in agglomeration areas, mainly because of regional differences in housing costs. In this paper, we add a home goods sector to the seminal NEG model of Krugman (1991). We show that a core–periphery structure can endogenously emerge in which the core is the more expensive area. This result has an important normative implication. Since higher costs of living imply falling real wages if there is no nominal wage premium, it is not desirable for everybody to live in the core region.