introduction zipf's law and the gravity equation the structure of the model multiple locations...

Introduction

Zipf's Law and the gravity equation

The structure of the model

Multiple locations and equilibrium

Chapter 14 tool: computer simulations

Welfare

Application: predicting the location of European cities

Conclusions

CHAPTER 14; GEOGRAPHICAL ECONOMICSInternational Trade & the World Economy; Charles van Marrewijk

Explanations for trade

Classical 2. Opportunity costs 3. Comparative advantage

Neo-classical 4. Production structure 5. Factor prices 6. Production volume 7. Factor abundance

1. The world economy

New trade 9. Imperfect competition 10. Intra-industry trade

Policy

8. Trade policy

11. Strategic trade policy

12. Int. trade organizations 13. Economic integration

17. Applied trade policy modeling

Economicgeography

New interactions 14. Geographical economics 15. Multinationals 16. New goods, growth, and development

Industrialorganization

Internationalbusiness

Growth theory

Part

IPa

rt I

IPa

rt I

IIP

art

IV

18. Concluding remarks

Introduction





Welfare


Conclusions


Introduction International Trade & the World Economy; Charles van Marrewijk

Objectives / key terms

Zipf's Law Gravity equation

Cumulative causation Agglomeration

Multiple equilibria Stability / optimality

Simulations Location

Paul Krugman (1953 - )

Introduction





Welfare


Conclusions


Zipf's Law and the gravity equation International Trade & the World Economy; Charles van Marrewijk

0

5

10

15

20

0 1 2 3 4 5 6

ln(rank)

ln(size)

Bombay

Calcutta

Delhi

992.0

);ln(048.194.16)ln(

2

)4.138()4.528(

R

rankpopulation ii

Zipf's Law and the gravity equation International Trade & the World Economy; Charles van Marrewijk

-10

-8

-6

-4

5 10

ln(distance)

ln(e

xpor

t)-1

.033

*ln(

GD

P)

Japan

Belgium

Holland

Czech R. Austria

Switz.

926.0

ln(869.0)ln(033.1281.0)ln()77.12()86.34()40.0(

2

iii

R

)distanceGDPexport

Introduction





Welfare


Conclusions



International Trade & the World Economy; Charles van Marrewijk

N2 manufacturing firmsN2 varieties (elasticity )internal returns to scalemonopolistic competition

N1 manufacturing firmsN1 varieties (elasticity )internal returns to scalemonopolistic competition

Farms in 1 Farms in 2

Spen

ding

1-m

m

Manufacturingworkers in 2

Farmworkers in 2

Consumers in 2

Farmworkers in 1

Consumers in 1

Inco

me

Spen

ding

(goo

ds)

(far

m la

bor)

(lab

or)

Inco

me

(lab

or)

Inco

me

Spending onmanufactures

Spen

ding

on f

ood

Inco

me

(far

m la

bor)

Spen

ding

on f

ood

1-m

mSpending onmanufactures

(goo

ds)

T

a

c

b

de

f

Direction of (goods and services flows)

Direction of money flows

Mobility (i)

g

Manufacturingworkers in 1

Introduction





Welfare


Conclusions


Multiple locations and equilibrium International Trade & the World Economy; Charles van Marrewijk

Laborers in themanufacturing sectorin region 2; 2L

Laborers in themanufacturing sectorin region 1; 1L

Laborers in thefood sector inregion 1; 1(1-)L

Laborers in thefood sector inregion 2; 2(1-)L

Laborers in thefood sector (1-)L

Laborers in themanufacturing sector; L

Total number of laborers; L

(1-)

1 2 1 2

Note: 1 + 2 = 1 Note: 1 + 2 = 1 Mobility


Price index equation

)1/(1

12

12

1111

importedproducedlocally

WTWP

Income equation incomefood

incomeingmanufactur

WI )1(1111

Wage equation (from demand = supply in manufactures sector

/112

12

1111

PTIPIW

Short-run equilibrium; given the distribution of manufacturing labour


a. spreading

0

0.5

1

region 1 region 2

b. agglomerate in region 1

0

1

region 1 region 2

c. agglomerate in region 2

0

1

region 1 region 2

Three examples


wagerealaveragedifferencewage

speedadj

inlaborchange

wwwwherewwd

22111

.

1

1

1 );(

Manufacturing labour force adjustment

Table 14.2 When is a long-run equilibrium reached?

Possibility 1 Possibility 2 Possibility 3

If the real wage for

manufacturing workers in

region 1 is the same as the

real wage for manufacturing

workers in region 2.

All manufacturing workers

are located in region 1

(agglomeration in region 1)

All manufacturing workers

are located in region 2

(agglomeration in region 2)

Introduction





Welfare


Conclusions


Chapter 14 tool: computer simulations International Trade & the World Economy; Charles van Marrewijk

0.97

1

1.03

0 0.5 1

share of manufacturing workers in region 1 (lambda1)

rela

tive

real

wag

e (w

1/w

2)

A

DC

B

E

F

Chapter 14 tool: computer simulations International Trade & the World Economy; Charles van Marrewijk

0.9

1

1.1

0.0 0.5 1.0

share of manufacturing workers in region 1 (lambda1)

rela

tive

real

wag

e (w

1/w

2) T = 1.3

T = 1.3

T = 1.7

T = 1.7

T = 2.1

T = 2.1



Sustain points

Break point

Transport costs T10

1

1

0.5

Stable equilibria

Unstable equilibria

B

S0

S1

Basin of attraction for spreading equilibrium

Basin of attraction for agglomeration in region 1

Basin of attraction for agglomeration in region 2

Introduction





Welfare


Conclusions


WelfareInternational Trade & the World Economy; Charles van Marrewijk

1

1.2

5

1.5

1.7

5 2

2.2

5

2.5

2.7

5 3

0.033

0.433

0.8330.88

0.9

0.92

0.94

0.96

0.98

1

transport cost T

lambda 1

Welfare

0.98-1

0.96-0.98

0.94-0.96

0.92-0.94

0.9-0.92

0.88-0.9

Introduction





Welfare


Conclusions


Conclusions International Trade & the World Economy; Charles van Marrewijk

Combining various international economic theories with factor mobility provides a simple theory of location and agglomeration.

Distinction short-run equilibrium (given distribution of the manufacturing labour force) and long-run equilibrium (endogenously determined by equality of real wages).

Distinction stable equilibrium and unstable equilibrium.

Using computer simulations:

• high transport costs lead to spreading of economic activity

• low transport costs lead to agglomeration of economic activity

• intermediate transport costs lead to multiple long-run equilibria

Extensions of the basic model can explain empirical regularities, such as Zipf’s Law and the Gravity Equation.

introduction zipf's law and the gravity equation the structure of the model multiple locations...

Documents

model international

equilibrium chapter

model multiple locations

introduction zipfs law

manufactures sector