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  • Print publication year: 2019
  • Online publication date: December 2019

8 - Extensions of the Core Model

from Part III - Geographical Economics


We introduce three alternative models that extend the core model of Chapter 7. First, the intermediate goods model includes intermediate production and inter-sectoral labour mobility, instead of inter-regional labour mobility. In some cases this leads to a bell-shaped curve instead of the tomahawk diagram, implying that agglomeration gradually rises and falls as transport costs decline. Second, the generalized model incorporates both the core model and the intermediate goods model in one framework. Third, the solvable model introduces a second production factor (such as human capital) in the manufacturing sector. This model leads to explicit solutions for factor rewards. We conclude with an empirical evaluation of urban power laws and show that adding congestion to the core model allows us to better understand the influence of parameter changes on estimated power law exponents.