DP4936 A Simple Model of Economic Geography à la Helpman-Tabuchi

Author(s): Yasusada Murata , Jacques-François Thisse

Publication Date: February 2005

Keyword(s): commuting costs , urban costs , transportation costs , economic geography , agglomeration

JEL(s): F12 , R12

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP4936.asp

This paper explores the interplay between commodities’ transportation costs and workers’ commuting costs within a general equilibrium framework à la Dixit-Stiglitz. Workers are mobile and choose a region to work in as well as an intra-urban location in which to live. We show that a more integrated economy need not be more agglomerated. Instead, low transportation costs lead to the dispersion of economic activities. This is because workers are able to alleviate the burden of urban costs by being dispersed, while retaining a good access to all varieties. By contrast, low commuting costs foster the agglomeration of economic activities.