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Declining costs of communication and transportation: what are the effects on agglomerations?


Gersbach, Hans; Schmutzler, Armin (2000). Declining costs of communication and transportation: what are the effects on agglomerations? European Economic Review, 44(9):915-919.

Abstract

We consider a two-stage model of locational choice. Firms decide in which of three locations (or countries) to build plants; they then compete in all three markets. Knowledge spillovers reduce marginal costs in agglomerations; through intra-firm spillovers these cost reductions can be exported to other locations. We show that improvements in the exchange of information within firms make agglomeration more likely, because knowledge obtained in the center can be transmitted to other locations more easily. Decreases in transportation costs tend to destabilize agglomerations, since competition for peripheral locations increases, which decreases the value of knowledge obtained in agglomerations.

Abstract

We consider a two-stage model of locational choice. Firms decide in which of three locations (or countries) to build plants; they then compete in all three markets. Knowledge spillovers reduce marginal costs in agglomerations; through intra-firm spillovers these cost reductions can be exported to other locations. We show that improvements in the exchange of information within firms make agglomeration more likely, because knowledge obtained in the center can be transmitted to other locations more easily. Decreases in transportation costs tend to destabilize agglomerations, since competition for peripheral locations increases, which decreases the value of knowledge obtained in agglomerations.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:25 September 2000
Deposited On:11 Feb 2008 12:21
Last Modified:06 Dec 2017 13:11
Publisher:Elsevier
ISSN:0014-2921
Publisher DOI:https://doi.org/10.1016/S0014-2921(99)00016-1

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