This paper investigates how the interactions between product differentiation, transport costs and urban costs determine spatial inequality in a general-equilibrium model. We shed light on the interrelation between different definitions of home market effect (HME) in literature. While the wages...

In New Trade Theory models, the larger region hosts an overproportionate share of producers. This Home Market Effect (HME) exacerbates regional income discrepancies caused by trade frictions or technology differences. With homogeneous firms, it requires inter-industry reallocations to emerge. We...

The paper asks whether subsidies aiming to redistribute economic activity across regions can be justified with the welfare argument. Moreover, different tax systems are compared with respect to the size of the subsidy needed for achieving a certain spatial distribution of economic activity, and...

The global welfare implications of home market effects in trade models with imperfect competition are little understood. This paper proposes a simple model in which such implications can be easily analyzed. It shows an overall tendency of imperfectly competitive sectors to inefficiently cluster...

We study decentralized and optimal urbanization in a simple multi-sector model of a rural-urban economy focusing on productivity differences and internal trade frictions. We show that even in the absence of the typical externalities studied in the literature, such as agglomeration, congestion or...

This paper revisits the home market effect (HME) without any homogeneous good by reconstructing the footloose capital model. This simple model analytically reproduces some typical results scattered in the existing literature, and also provides new insights. Firstly, we derive both spatial...

This paper attempts to model directly the "folk theorem" of spatial economics, according to which increasing returns to scale are essential for understanding the geographical distributions of activity. The model uses the simple structure of most New Economic Geography papers, with two identical...

Globalization and European integration are substantially changing the interregional division of labor in Europe and the industrial specialization of European regions, thereby potentially affecting the extent of disparities between countries and regions. This paper reviews several theoretical...