Modeling Services Sectors’ Agglomeration within a New Economic Geography Model

This study investigates whether services sectors' agglomeration can be explained within a common New Economic Geography model by Krugman and Venables (1996). Special feature of this modeling is to account for the lower importance of intermediate goods received for the services sector, a fact that has been shown in Empirics for the European Union (Krenz (2010)). The results show different strengths of agglomeration for both the industrial and services sector depending on initial values of strength of intra-sectoral and inter-sectoral inputs, consumers' preferences, scale economies and transport costs. The lower extent of services sectors' agglomeration seen in Empirics can be explained within the model