The Price Effect on Spatial Structure: Revisiting the New Economic Geography Model

Abstract

This paper adds a factor of production, land, to the standard core-periphery model of the New Economic Geography to analyse the effect of land rent on the price index and spatial structure. The result indicates that when production of the manufacturing sector has high dependence on land, and high demand elasticity for differentiated goods, the price index of the core region is higher than that of the periphery, and that the price index could rise with a degree of agglomeration. Meanwhile, the market forces cannot generate a core-periphery structure, which indicates the significance of the price effect on spatial structure.