Agricultural surplus, division of labour and the emergence of cities. A spatial general equilibrium model

In this paper, we expose the economic conditions of cities emergence in a spatial general equilibrium framework. The presence of increasing returns based on the division of labour, transport costs and the possible existence of an agricultural surplus are enough to generate different possible urban equilibrium. A city may not be sustainable if internal transport costs are too high. On the other hand, a persistent migratory pressure may exist between the city and the surrounding rural hinterland if the urban labour market is saturated. In addition, we study the conditions of stability of the monocentric equilibrium in the different cases.