Geographically Localized Externalities and Comparative Advantage in New Economic Geography
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We show that the standard new economic geography model results are enriched by the consideration of potential international differences in productivity levels, because this allows a more complete description of centripetal and centrifugal forces, which will be distinguished as originated by traditional agglomeration and dispersion forces and comparative advantage. Moreover, we suggest a simple way to evaluate the "intensities" of these forces for full agglomeration equilibria. Finally, we show that stability properties change when regional productivity levels depend upon knowledge spillovers (congestions) which are geographically localized allowing the region with a higher skilled workers density to have higher (lower) productivity levels.