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Spatial inequality and urban costs: Revisiting the home market effect
Author(s) -
Zhou Yiming
Publication year - 2019
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/jors.12414
Subject(s) - inequality , economics , welfare , outcome (game theory) , product (mathematics) , distribution (mathematics) , spatial inequality , economic geography , microeconomics , econometrics , market economy , mathematics , mathematical analysis , geometry
This paper investigates how the interactions between product differentiation, transport costs, and urban costs determine the spatial inequality in a general‐equilibrium model. We shed light on the interrelation between different definitions of home market effect (HME) in literature. While the wages in the large region are always higher, the HME in industrial distribution occurs in a limited range of parameters, implying that the HME in factor price is more pervasive. Moreover, we show that the reverse HME is the more common outcome. It indicates that neglecting urban costs in theoretical methodologies tends to overestimate the existence of HME. We also disclose how a change in urban costs or transport costs affects regional inequalities and welfare.