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Journal of Economic Geography Advance Access originally published online on April 27, 2005
Journal of Economic Geography 2006 6(2):113-139; doi:10.1093/jeg/lbh070
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© The Author (2005). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

The ‘genome’ of NEG models with vertical linkages: a positive and normative synthesis

Gianmarco I.P. Ottaviano* and Frédéric Robert-Nicoud**

* University of Bologna, DSE, Strada Maggiore 45, 40125 Bologna, Italy; FEEM and CEPR. email <ottavian{at}economia.unibo.it>
** University of Geneva, Bd du Pont d'Arve 40, CH–1211 Geneva 4, Switzerland; and CEPR. email <robert{at}ecopo.unige.ch>

This paper takes a broader look at how vertical linkages can trigger the spatial agglomeration of economic activity in a ‘new economic geography’ (NEG) set-up. First, it formally establishes the key positive features of a wide class of vertical-linkage models without resorting to numerical simulations. Second, it proposes an analytically solvable model of this class. Third, it addresses the important though neglected issue of whether in such models market forces yield too much or too little agglomeration. It shows that, in terms of positive implications, vertical-linkage models are identical to migration models once considered in their ‘natural’ state space. Important differences arise, however, in terms of normative implications in the absence of interregional transfers: in migration models agglomeration is necessarily bad for people stuck in lagging regions; in the vertical-linkage models it can be good for everybody as it delivers richer product variety.

Keywords: new economic geography, vertical linkages, welfare analysis, F12, F15, F21, R12
Date submitted: 6 August 2003     Date accepted: 23 December 2004


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