Increasing Returns and Economic Geography

This paper develops a two-region, two-sector general equilibriun model of location. The location of agricultural production is fixed, but ionopolistcally competitive manufacturing finns choose their location to maximize profits. If transportation costs are high, returns to scale weak, and the share of spending on manufactured goods low, the incentive to produce close to the market leads to an equal division of manufacturing between the regions. With lower transport costs, stronger scale economies, or a higher manufacturing share, circular causation sets in: the more manufacturing is located in one region, the larger that region's share of demand, and this provides an incentive to locate still more manufacturing there. Thus when the parameters of the economy lie even slightly on one side of a critical "phase boundary", all manufacturing production ends up concentrated in only one region.

Is the Japan Problem Over?

This paper argues that Japan's export growth is likely to slow sharply over the next few years, perhaps to zero. For the past dozen years Japan's export volume has gown much more rapidly than her domestic production. This divergence was made necessary primarily by rising oil prices, and secondarily by a shift into current account surplus. Now both these factors are running in reverse. If Japan's export growth does slow sharply, the mechanism will be a very strong yen -- probably above 140. The paper argues that it is Japan's export growth rather than static trade structure that is the main cause o± trade tension, so these developments should lead to a considerable reduction in trade friction.

History Vs. Expectations

In models with external economies, there are often two or more long run equilibria. Which equilibrium is chosen? Much of the literature presumes that "history" sets initial conditions which determine the outcome, but an alternative view stresses the role of "expectations", i.e. of self-fulfilling prophecy. This paper uses a simple trade model with both external economies and adjustment costs to show how the parameters of the economy determine the relative importance of history and expectations in determining equilibrium.

Fluctuations, Instability, and Agglomeration

Recent models in economic geography suggest that there may be very large numbers of equilibrium spatial structures. Simulations suggest, however, that the structures that emerge are surprisingly orderly, and often seem approximately to follow simple rules about the spacing of urban sites. This paper offers an explanation in terms of the process by which a spatial economy diverges away from an even distribution of activity across the landscape. It shows that a small divergence of activity away from spatial uniformity, even if it is highly irregular, can be regarded as the sum of a number of simple periodic fluctuations at different spatial 'wavelengths'; these fluctuations grow at different rates. There is a particular 'preferred wavelength' that grows fastest; provided that the initial distribution of activity across space is flat enough, this preferred wavelength eventually dominates the spatial pattern and becomes the typical distance between cities. The approach suggests that surprisingly simple principles of self-organization may lie beneath the surface of models that appear at first to yield hopelessly complex possibilities.

Cities in Space: Three Simple Models

Urban agglomerations arise at least in part out of the interaction between economies of scale in production and market size effects. This paper develops a simple spatial framework to develop illustrative models of the determinants of urban location, of the number and size of cities, and of the degree of urbanization. A Central theme is the probable existence of multiple equilibria, and the dependence of the range of potential outcomes on a few key parameters.