Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
Explanations for trade
Classical 2. Opportunity costs 3. Comparative advantage
Neo-classical 4. Production structure 5. Factor prices 6. Production volume 7. Factor abundance
1. The world economy
New trade 9. Imperfect competition 10. Intra-industry trade
Policy
8. Trade policy
11. Strategic trade policy
12. Int. trade organizations 13. Economic integration
17. Applied trade policy modeling
Economicgeography
New interactions 14. Geographical economics 15. Multinationals 16. New goods, growth, and development
Industrialorganization
Internationalbusiness
Growth theory
Part
IPa
rt I
IPa
rt I
IIP
art
IV
18. Concluding remarks
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
Introduction International Trade & the World Economy; Charles van Marrewijk
Objectives / key terms
Zipf's Law Gravity equation
Cumulative causation Agglomeration
Multiple equilibria Stability / optimality
Simulations Location
Paul Krugman (1953 - )
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
Zipf's Law and the gravity equation International Trade & the World Economy; Charles van Marrewijk
0
5
10
15
20
0 1 2 3 4 5 6
ln(rank)
ln(size)
Bombay
Calcutta
Delhi
992.0
);ln(048.194.16)ln(
2
)4.138()4.528(
R
rankpopulation ii
Zipf's Law and the gravity equation International Trade & the World Economy; Charles van Marrewijk
-10
-8
-6
-4
5 10
ln(distance)
ln(e
xpor
t)-1
.033
*ln(
GD
P)
Japan
Belgium
Holland
Czech R. Austria
Switz.
926.0
ln(869.0)ln(033.1281.0)ln()77.12()86.34()40.0(
2
iii
R
)distanceGDPexport
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
The structure of the model
International Trade & the World Economy; Charles van Marrewijk
N2 manufacturing firmsN2 varieties (elasticity )internal returns to scalemonopolistic competition
N1 manufacturing firmsN1 varieties (elasticity )internal returns to scalemonopolistic competition
Farms in 1 Farms in 2
Spen
ding
1-m
m
Manufacturingworkers in 2
Farmworkers in 2
Consumers in 2
Farmworkers in 1
Consumers in 1
Inco
me
Spen
ding
(goo
ds)
(far
m la
bor)
(lab
or)
Inco
me
(lab
or)
Inco
me
Spending onmanufactures
Spen
ding
on f
ood
Inco
me
(far
m la
bor)
Spen
ding
on f
ood
1-m
mSpending onmanufactures
(goo
ds)
T
a
c
b
de
f
Direction of (goods and services flows)
Direction of money flows
Mobility (i)
g
Manufacturingworkers in 1
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
Multiple locations and equilibrium International Trade & the World Economy; Charles van Marrewijk
Laborers in themanufacturing sectorin region 2; 2L
Laborers in themanufacturing sectorin region 1; 1L
Laborers in thefood sector inregion 1; 1(1-)L
Laborers in thefood sector inregion 2; 2(1-)L
Laborers in thefood sector (1-)L
Laborers in themanufacturing sector; L
Total number of laborers; L
(1-)
1 2 1 2
Note: 1 + 2 = 1 Note: 1 + 2 = 1 Mobility
Multiple locations and equilibrium International Trade & the World Economy; Charles van Marrewijk
Price index equation
)1/(1
12
12
1111
importedproducedlocally
WTWP
Income equation incomefood
incomeingmanufactur
WI )1(1111
Wage equation (from demand = supply in manufactures sector
/112
12
1111
PTIPIW
Short-run equilibrium; given the distribution of manufacturing labour
Multiple locations and equilibrium International Trade & the World Economy; Charles van Marrewijk
a. spreading
0
0.5
1
region 1 region 2
b. agglomerate in region 1
0
1
region 1 region 2
c. agglomerate in region 2
0
1
region 1 region 2
Three examples
Multiple locations and equilibrium International Trade & the World Economy; Charles van Marrewijk
wagerealaveragedifferencewage
speedadj
inlaborchange
wwwwherewwd
22111
.
1
1
1 );(
Manufacturing labour force adjustment
Table 14.2 When is a long-run equilibrium reached?
Possibility 1 Possibility 2 Possibility 3
If the real wage for
manufacturing workers in
region 1 is the same as the
real wage for manufacturing
workers in region 2.
All manufacturing workers
are located in region 1
(agglomeration in region 1)
All manufacturing workers
are located in region 2
(agglomeration in region 2)
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
Chapter 14 tool: computer simulations International Trade & the World Economy; Charles van Marrewijk
0.97
1
1.03
0 0.5 1
share of manufacturing workers in region 1 (lambda1)
rela
tive
real
wag
e (w
1/w
2)
A
DC
B
E
F
Chapter 14 tool: computer simulations International Trade & the World Economy; Charles van Marrewijk
0.9
1
1.1
0.0 0.5 1.0
share of manufacturing workers in region 1 (lambda1)
rela
tive
real
wag
e (w
1/w
2) T = 1.3
T = 1.3
T = 1.7
T = 1.7
T = 2.1
T = 2.1
Chapter 14 tool: computer simulations
International Trade & the World Economy; Charles van Marrewijk
Sustain points
Break point
Transport costs T10
1
1
0.5
Stable equilibria
Unstable equilibria
B
S0
S1
Basin of attraction for spreading equilibrium
Basin of attraction for agglomeration in region 1
Basin of attraction for agglomeration in region 2
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
WelfareInternational Trade & the World Economy; Charles van Marrewijk
1
1.2
5
1.5
1.7
5 2
2.2
5
2.5
2.7
5 3
0.033
0.433
0.8330.88
0.9
0.92
0.94
0.96
0.98
1
transport cost T
lambda 1
Welfare
0.98-1
0.96-0.98
0.94-0.96
0.92-0.94
0.9-0.92
0.88-0.9
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
Application: predicting the location of European cities
International Trade & the World Economy; Charles van Marrewijk
Introduction
Zipf's Law and the gravity equation
The structure of the model
Multiple locations and equilibrium
Chapter 14 tool: computer simulations
Welfare
Application: predicting the location of European cities
Conclusions
CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk
Conclusions International Trade & the World Economy; Charles van Marrewijk
Combining various international economic theories with factor mobility provides a simple theory of location and agglomeration.
Distinction short-run equilibrium (given distribution of the manufacturing labour force) and long-run equilibrium (endogenously determined by equality of real wages).
Distinction stable equilibrium and unstable equilibrium.
Using computer simulations:
• high transport costs lead to spreading of economic activity
• low transport costs lead to agglomeration of economic activity
• intermediate transport costs lead to multiple long-run equilibria
Extensions of the basic model can explain empirical regularities, such as Zipf’s Law and the Gravity Equation.