The Core-Periphery Model and Endogenous Growth: Stabilizing and Destabilizing Integration

We present a model where long-run growth and industrial location are jointly endogenous by introducing Romerian product innovation growth into Krugman's core-periphery model. We focus on stability, showing that growth is a powerful centripetal force, but that knowledge spillovers are a powerful...

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Bibliographic Details
Published in:Economica (London) 2000-08, Vol.67 (267), p.307-324
Main Authors: Baldwin, Richard E, Forslid, Rikard
Format: Article
Language:English
Subjects:
Agglomeration
Core periphery model
Economic costs
Economic geography
Economic growth models
Economic growth rate
Economic models
Eigenvalues
Endogenous growth theory
Integration
Long run equilibrium
Real wages
Studies
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Summary:We present a model where long-run growth and industrial location are jointly endogenous by introducing Romerian product innovation growth into Krugman's core-periphery model. We focus on stability, showing that growth is a powerful centripetal force, but that knowledge spillovers are a powerful centrifugal force. Integration policies that lower the cost of trading ideas are shown to encourage dispersion of economic activity while those that lower the cost of trading goods encourage agglomeration. Agglomeration is shown to be favourable to growth in both regions. The pro-growth effects mitigate the periphery's static welfare loss from agglomeration.
ISSN:0013-0427
1468-0335
DOI:10.1111/1468-0335.00211