Good governance, trade and agglomeration

Abstract

This article presents a model for developing countries that investigates the factors behind agglomeration of activities in urban giants. First we show that market access to external demand tends to attract entrepreneurs. Second we find that the attractive power of the urban giant can be linked to a lack of democracy, in the sense that by reversing the cost of living effect, democracy allows the reduction in spatial inequality and then the tendency of agglomeration. Finally we analyse how the funds embezzled by a corrupt government vary according to internal and external trade liberalisation. We show that a decrease in the disadvantage of the periphery to trade with the external market can limit the funds embezzled under bad governance. Copyright (c) 2008 the author(s). Journal compilation (c) 2008 RSAI.