Edited by Bernard Fingleton
Chapter 5: Agglomeration and Growth in the NEG: A Critical Assessment
5. Agglomeration and growth in NEG: a critical assessment1 Fabio Cerina and Francesco Pigliaru 5.1 INTRODUCTION There are sizeable and persistent per-capita income gaps across states and even across the regions of a rich integrated area such as the EU. With regard to regional inequality, one of the most prominent explanations stems from the idea that regions are highly specialized, and that productivity may diﬀer across sectors. In Kaldor’s inﬂuential explanation, trade can drive apart two almost identical regions by causing industry to agglomerate in one location. This mechanism has been modelled in several papers on endogenous growth and trade (for example, Lucas, 1988 and Grossman and Helpman, 1991). However, papers in this tradition do not take geography (that is, transport costs) into account. More recently, the development of the new economic geography (NEG) literature has extended the Grossman and Helpman approach to include explicit mechanisms of agglomeration. In this chapter we will assess the contribution of recent models of agglomeration and economic growth in relation to Kaldor’s proposition. In the ﬁrst part of the chapter we explain, compare and discuss the new approach. In particular, we: ● ● review how the mechanism leading to (catastrophic) agglomeration of the high-tech sector works and assess the existence of core results across diﬀerent models; explain and discuss what the economic consequences of catastrophic agglomeration are for the core and for the periphery. In the second part of the chapter we will assess the analytical robustness of some important results that may...
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