In this paper we present a general new economic geography model with multiple industries and regions, full labor and capital mobility, land use in production and consumption, and a dynamic adjustment process in which consumers maximize utility and firms respond to nonzero profits. All industries use intermediate inputs as well as land, labor, and capital. Systems of cities form endogenously within this framework, including asymmetrical urban hierarchies and cities of different sizes and industry compositions. Each urban area has a bid-rent gradient and zones with land uses and densities as in the von Thünen model. The equilibrium depends not only on initial conditions but also on speeds of adjustment. The model is a prototype for empirical implementation, as illustrated with a simulation of the effects of transportation cost reductions.
This paper is part of a book where distinguished contributors discuss issues including the impact and implications of European expansion as well as developments in the Asia-Pacific region. They also examine the driving forces, backgrounds, obstacles and opportunities for regions to become powerful global players.
This paper describes our process for estimating trade flow parameters (Industry Betas and Sigmas).