International Economic Review · 2001 · 387 citations · 0 references
Social SciencesEconomicsGeographyEconomic GeographyInnovationRegional EconomicsAgglomeration EconomiesCore-periphery RelationsIndustrial LocationInnovation ClustersRegional Economic DevelopmentRegional GrowthAgglomerationAgglomeration EconomicsAgglomeration TheoryIndustrial AgglomerationIndustry LocalizationRegional Growth AnalysisSpatial Agglomeration
The article introduces a model in which growth and geographic agglomeration of economic activities reinforce each other. The model posits that agglomeration lowers innovation costs through transaction‑cost externalities, while expanding sectors attract new firms to the core, concentrating innovation and production, with some firms eventually relocating to the periphery as the core grows.
This article presents a model in which growth and geographic agglomeration of economic activities are mutually self‐reinforcing processes. Economic agglomeration in one region spurs growth because it reduces the cost of innovation in that region through a pecuniary externality due to transaction costs. Growth fosters agglomeration because, as the sector at the origin of innovation expands, new firms tend to locate close to this sector. Agglomeration implies that all innovation and most production activities take place in the core region. However, as new firms are continuously created in the core, some relocate their production to the periphery.