Abstract
We propose a framework that specifies the process of economic development as
an evolutionary branching process of product innovations. Each product innovation
provides a growth opportunity for an existing firm or a new firm, and for an existing city
or a new city. One can then obtain both firm size and city size distributions as two
aggregates resulting from a single evolutionary process. Gains from variety at the firm
level (economies of scope) and the urban level (Jacobs externalities) provide the
central feedback mechanism in economic development generating strong path
dependencies in the spatial concentration of industries and the specialization of
cities. Gains from size are also expected, yet these are ultimately bounded by
increasing wages. The contribution of our framework lies in providing a microfoundation
of economic geography in terms of the interplay between industrial
dynamics and urban growth. The framework is sufficiently general to investigate
systematically a number of stylized facts in economic geography, while at the same
time it is sufficiently flexible to be extended such as to become applicable in more
specific micro-contexts. A number of extensions related to the concepts of knowledge
spillover and lock-in, are also discussed.
Original language | English |
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Pages (from-to) | 635-649 |
Journal | Journal of Economic Geography |
Volume | 7 |
Issue number | 5 |
DOIs | |
Publication status | Published - 2007 |