Business Intelligence

Agglomeration And Growth With Endogenous Expediture Shares

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Executive Summary

The authors develop a New Economic Geography and Growth model which, by using a CES utility function in the second-stage optimization problem, allows for expenditure shares in industrial goods to be endogenously determined. The implications of the generalization are quite relevant. In particular, they obtain the following novel results: two additional non-symmetric interior steady states emerge for some inter-mediate values of trade costs. These steady-states are stable if the industrial and the traditional goods are either good or very poor substitutes, while they are unstable for intermediate (yet lower than one) values of the intersectoral elasticity of substitution.

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