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Agglomeration and population aging in a two region model of exogenous growth

Grafeneder-Weissteiner, Theresa and Prettner, Klaus (2009) Agglomeration and population aging in a two region model of exogenous growth. Department of Economics Working Paper Series, 125. Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business, Vienna.

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Abstract

This article investigates the effects of introducing demography into the New Economic Geography. We generalize the constructed capital approach, which relies on infinite individual planning horizons, by introducing mortality. The resulting overlapping generation framework with heterogeneous individuals allows us to study the effects of aging on agglomeration processes by analytically identifying the level of trade costs that triggers catastrophic agglomeration. Interestingly, this threshold value is rather sensitive to changes in mortality. In particular, the introduction of a positive mortality rate makes the symmetric equilibrium more stable and therefore counteracts agglomeration tendencies. In sharp contrast to other New Economic Geography approaches, this implies that deeper integration is not necessarily associated with higher interregional inequality.

Item Type: Paper
Keywords: agglomeration / new economic geography / population aging
Classification Codes: RVK QY 000 ; JEL C61, F12, F15
Divisions: Departments > Volkswirtschaft
Depositing User: Repository Administrator
Date Deposited: 10 Feb 2009 15:43
Last Modified: 19 Sep 2017 18:48
URI: http://epub.wu.ac.at/id/eprint/1670

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