Journal Article

Knowledge spillovers, black holes and the equilibrium location of vertically linked industries

Sylvain Barde

in Journal of Economic Geography

Volume 10, issue 1, pages 27-53
Published in print January 2010 | ISSN: 1468-2702
Published online April 2009 | e-ISSN: 1468-2710 | DOI: https://dx.doi.org/10.1093/jeg/lbp014
Knowledge spillovers, black holes and the equilibrium location of vertically linked industries

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  • Technological Change; Research and Development
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Using a generalized version of the Venables (1996, International Economic Review, 37: 341–359) model, this article explores the relative locations of two vertically linked sectors with knowledge spillovers. Analytical investigation shows that the dynamic properties of the Venables model are significantly affected by the presence of spillovers. In particular, the own-cost reduction effects at low transport costs can be so strong that runaway agglomeration dynamics appear in a manner consistent with the black hole concept found in the literature. However, due to the decay of information over space, these black hole dynamics are endogenous to the model and disappear when transport costs are high enough. Importantly, the location predictions obtained in simulations of the model are consistent with the empirical finding that industrials sector that benefit from spillovers are typically more agglomerated than sector that do not benefit from such spillovers.

Keywords: knowledge spillovers; agglomeration; location of economic activity; F12; R11; R12; O30

Journal Article.  10241 words.  Illustrated.

Subjects: Technological Change; Research and Development ; International Trade ; Urban, Rural, and Regional Economics

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