Report

Step-by-step migration to efficient agglomerations

Abstract: Recent literature suggests that historical accidents can trap economies in inefficient equilibria. In a prototype model in the literature, there are two locations, the productive South and the unproductive North. By accident of history, the industry starts in the North. Because of agglomeration economies, the industry may reside in the North forever, an inefficient outcome. This paper modifies the standard model by assuming there is a continuum of locations between the North and the South. Productivity gradually increases as one moves South. There is a unique long-run equilibrium in this economy where all agents locate at the most productive locations.

https://doi.org/10.21034/sr.221

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Staff Report

Publication Date: 1996

Number: 221