Agglomeration and population aging in a two region model of exogenous growth

Theresa Grafeneder-Weissteiner and Klaus Prettner

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

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 interregional inequality.

JEL-codes: C61 F12 F15 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-dge, nep-geo and nep-ure
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Agglomeration and population ageing in a two region model of exogenous growth (2009)
Working Paper: Agglomeration and population aging in a two region model of exogenous growth (2009)
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