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Journal of Economic Geography Advance Access published online on April 17, 2009
Journal of Economic Geography, doi:10.1093/jeg/lbp014
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Knowledge spillovers, black holes and the equilibrium location of vertically linked industries

Sylvain Barde*

*Observatoire Français des Conjonctures Economiques, Department for Research on Innovation and Competition, 250, rue Albert Einstein, Valbonne – Sophia Antipolis, 06560 France. email <sylvain.barde{at}ofce.sciences-po.fr>

JEL classifications: F12, R11, R12, O30

Using a generalized version of the Venables (1996, International Economic Review, 37: 341–359) model, this article explores the relative locations of two vertically linked sectors with knowledge spillovers. Analytical investigation shows that the dynamic properties of the Venables model are significantly affected by the presence of spillovers. In particular, the own-cost reduction effects at low transport costs can be so strong that runaway agglomeration dynamics appear in a manner consistent with the black hole concept found in the literature. However, due to the decay of information over space, these black hole dynamics are endogenous to the model and disappear when transport costs are high enough. Importantly, the location predictions obtained in simulations of the model are consistent with the empirical finding that industrials sector that benefit from spillovers are typically more agglomerated than sector that do not benefit from such spillovers.

Keywords: knowledge spillovers, agglomeration, location of economic activity
Date submitted: 5 September 2008     Date accepted: 10 March 2009


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