City formation by dual migration of firms and workers

Abstract

The Core-Periphery model in the new economic geography, which considers the single migration of workers driven by real wage inequality among regions, is extended to incorporate the migration of firms driven by real profit inequality among regions. In this dual-migration model, the behavior of solutions is qualitatively similar to that of single-migration models. That is, 1) spatially homogeneous population distributions become destabilized and eventually form several cities where both firms and workers agglomerate; 2) the number of cities decreases as transport costs decrease. These results provide a more general theoretical justification for the use of single migration models.