An Evolutionary Model Of Firms Location With Technological Externalities
Source: Scuola Superiore Sant'Anna
In an economic geography model where both a negative pecuniary and a positive technological externality are present, the authors introduce an explicit dynamics of firms' locational choice and they characterize its long run distribution. The analysis shows that economic activities evenly distribute when the pecuniary externalities prevail, and agglomerate otherwise. Due to the stochastic nature of the dynamics, even when agglomeration occurs, it is only a metastable state. By giving time and firms' heterogeneity a role, they are bringing the evolutionary approach inside the domain of economic geography.