Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Agglomeration and population aging in a two region model of exogenous growth
() and Klaus Prettner
Abstract: This article investigates the effects of introducing
demography into the New Economic Geography. We generalize the constructed
capital approach, which relies on infinite individual planning horizons, by
introducing mortality. The resulting overlapping generation framework with
heterogeneous individuals allows us to study the effects of aging on
agglomeration processes by analytically identifying the level of trade
costs that triggers catastrophic agglomeration. Interestingly, this
threshold value is rather sensitive to changes in mortality. In particular,
the introduction of a positive mortality rate makes the symmetric
equilibrium more stable and therefore counteracts agglomeration tendencies.
In sharp contrast to other New Economic Geography approaches, this implies
that deeper integration is not necessarily associated with higher
JEL-Codes: C61; F12; F15; (follow links to similar papers)
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