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Competition in the traditional sector does not matter for the ‘Core–Periphery’ model

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  • Behrens, Kristian
  • Kichko, Sergey
  • Zhelobodko, Evgeny

Abstract

We modify Paul Krugman’s (1991) ‘Core–Periphery’ model by replacing the traditional competitive sector with a monopolistically competitive one. We show that the structure of spatial equilibria remains the same as in the original model. This result continues to hold true under Cournot or Bertrand oligopolistic competition with free entry in the traditional sector. The key factor that explains why the nature of competition in the traditional sector does not matter for the spatial equilibria is constant expenditure shares–due to nested Cobb–Douglas and CES preferences–which imply that trade in the traditional sector is independent from its sectoral characteristics.

Suggested Citation

  • Behrens, Kristian & Kichko, Sergey & Zhelobodko, Evgeny, 2014. "Competition in the traditional sector does not matter for the ‘Core–Periphery’ model," Economics Letters, Elsevier, vol. 122(1), pages 94-99.
    • Handle: RePEc:eee:ecolet:v:122:y:2014:i:1:p:94-99
    DOI: 10.1016/j.econlet.2013.11.002
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    Cited by:

    1. Fujiwara, Kenji, 2021. "Strategic investment and industry location in a footloose capital model of economic geography," Economics Letters, Elsevier, vol. 203(C).
    2. Sergey Kichko, 2017. "Core-Periphery vs Home Market Effect: Trade in the Traditional Sector and the Demand Advantage," HSE Working papers WP BRP 159/EC/2017, National Research University Higher School of Economics.
    3. María Pilar Martínez-García & José Rodolfo Morales, 2019. "Resource effect in the Core–Periphery model," Spatial Economic Analysis, Taylor & Francis Journals, vol. 14(3), pages 339-360, July.
    4. Kenji Fujiwara, 2021. "Strategic investment and industry location in a footloose capital model of economic geography," Discussion Paper Series 224, School of Economics, Kwansei Gakuin University.

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    More about this item

    Keywords

    Core–Periphery model; Spatial equilibrium; Imperfect competition; New economic geography;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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