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

    Theresa Grafeneder-Weissteiner, Klaus Prettner

VID Working Papers, pp. 1-36, 2021/12/02

doi: 10.1553/0x003d0908


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doi:10.1553/0x003d0908

Abstract

This article investigates the effects of introducing demography into the New EconomicGeography. We generalize the constructed capital approach, which relies on infinite individualplanning horizons, by introducing mortality. The resulting overlapping generation frameworkwith heterogeneous individuals allows us to study the effects of ageing on agglomerationprocesses by analytically identifying the level of trade costs that triggers catastrophicagglomeration. Interestingly, this threshold value is rather sensitive to changes in mortality. Inparticular, the introduction of a positive mortality rate makes the symmetric equilibrium morestable and therefore counteracts agglomeration tendencies. In sharp contrast to other NewEconomic Geography approaches, this implies that deeper integration is not necessarilyassociated with higher interregional inequality.

Keywords: Agglomeration, New Economic Geography, Trade and Growth, Constructed Capital Model, Population Ageing

Published Online: 2021/12/02 17:05:54

Object Identifier: 0xc1aa5572 0x003d0908

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