Beyond the core model: solutions, simulations, and extensions

Introduction In chapter 3 we developed and discussed the main features of the core model of geographical economics. Most importantly, the model provides a coherent framework: it is a miniature world in which the demand in one region for the manufactures of another region is not exogenously imposed but derived from the income generated in the region through production and exports. Although we set up the different aspects of the model as simple and tractable as possible, it turned out to be quite complex to study analytically. This chapter builds on the analysis of chapter 3. First, we give a full analysis of the core model derived in chapter 3. Using simulations, we learn to understand what the long-run equilibria look like in the core model (thus endogenizing λ r , the share of the manufacturing labor force in region r ). As shown below, the so-called break point and sustain point will help us to summarize the long-run characteristics of the core model. Second, we show how these new insights regarding the core model of chapter 3 enable us to analyze some other important models in geographical economics. More specifically, we discuss three alternative models, each of which by now has also gained the reputation of being a “core” model of geographical economics. (i) Intermediate goods model . In the absence of interregional labor mobility, the main agglomeration mechanism is connection to suppliers of intermediate goods. (ii) Generalized model . Incorporating both the core model of chapter 3 and the intermediate goods model allows for a richer menu of long-run equilibria. […]