From urban agglomeration to dispersion

Abstract

Urban agglomeration becomes increasingly important due to globalization of world economies. This paper is a general equilibrium analysis of urban agglomeration economies due to product variety and agglomeration diseconomies due to intracity congestion in a two-city system framework. Special attention is paid to the effects of transportation costs on urban concentration and dispersion. Our main result is that dispersion necessarily takes place when the transportation cost is very low. We also conduct a numerical calculation using specific parameter values, and depicted a structural transition from dispersion to agglomeration, and then to redispersion when the transportation cost decreases monotonically. Finally, we observe that agglomeration is usually bad as compared to dispersion from a welfare point of view.