- Project Period: 04/2014 - 07/2018
- Funding: Deutsche Forschungsgemeinschaft (DFG)
A short description of the project
A key challenge for the literature in urban economics and economic geography is to provide a consistent theoretical explanation for the empirical observation that, on the one hand, city size distributions in most countries have remained remarkably stable over time, while on the other hand, there has been strong mobility of single cities within the respective urban hierarchy and substantial industry churning and structural change at the national and the local level. Important theoretical approaches, such as the "new economic geography" pioneered by Krugman (1991 JPE) or the classical urban systems models by Henderson (1974 AER), have explained the spatial structure of an economy from the fundamental trade-off between agglomeration and dispersion forces. This trade-off arises partly within, partly across sectors, and the relative strength of agglomeration and dispersion forces depends on the magnitude of transactions costs for moving goods, people and ideas across space. More recently, a new literature has emphasized the impacts of external trade liberalization and supply- and demand-side induced structural change on the spatial equilibrium structure. The existing theories address the aforementioned empirical trends mostly separately, however, without making explicit their interrelations and interactions.
The main aim of this project is to provide significant contributions to our understanding about the processes of regional growth and industrial change. We plan to develop a theoretical framework that combines and extends the two most promising recent approaches, namely Duranton (2007 AER) and Rossi-Hansberg/Wright (2007 RES). Those models are not yet readily suited to explain the empirical trends described above, because (i) they imply highly unrealistic local specialization patterns, (ii) they abstract from industrial change at the national level, and (iii) they assume away trade and mobility costs.
In this project we plan to extend and to unify these two models, by allowing for realistic sectoral asymmetries and for various spatial transaction costs, among other things. Our goal is to develop a theoretical framework that allows us to understand how the long-run stability of the city size distribution can be reconciled with strong industrial churning and structural change at the national and the local level. This new theoretical framework shall then be applied to study the impact of spatial transaction costs on these processes in a full-fledged general equilibrium context.
In combination with this main goal, we also plan to uncover important insights about the role of economic policy for the processes of regional growth and industrial change. This includes, for example, a detailed analysis of the general equilibrium mechanisms of regional policy and of jurisdictional competition.
Involved Employees of this project
- Prof. Dr. Jens Südekum
- Nico Steffen, MSc