Increasing Returns in Transportation and the Formation of Hubs

The spatial structure of transport network is subject to increasing returns in transportation, distance and density economies. Transport costs between locations are thus in general endogenous, and are determined by the interaction between the spatial distribution of transport demand and these increasing returns, although such interdependence has long been ignored in regional models. By using a simple model, the present paper explains the formation of transport hubs endogenously, and shows how the balance of these two types of increasing returns influences the spatial distribution of transport hubs.