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Journal of Economic Geography 4 (2004) pp. 227-250
Journal of Economic Geography, Vol. 4, No. 3, © Oxford University Press 2004; all rights reserved.

Geographic concentration and establishment size: analysis in an alternative economic geography model

Thomas J. Holmes* and John J. Stevens**

** Board of Governors of the Federal Reserve System, Washington, DC 20551, USA. email <john.j.stevens{at}frb.gov>

* Author to whom correspondence should be addressed at: Department of Economics, University of Minnesota, Minneapolis, MN 55455, USA; and Federal Reserve Bank of Minneapolis, MN 55401, USA. email <holmes{at}econ.umn.edu>

Abstract

Big cities specialize in services rather than manufacturing. Big-city establishments in services are larger than the national average, whereas those in manufacturing are smaller. We propose an explanation of these and other related facts. The theory is developed in an economic geography model that is an alternative to the standard Dixit–Stiglitz structure. In our tractable structure, which has potentially wider application, firms have monopoly power in local markets but are price takers in export markets.

Keywords: geographic concentration, establishment size, transportation costs, new economic geography,
JEL classifications: L11, F10, R10, R30
Date submitted: 4 March 2002     Date accepted: 8 September 2003


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