Geography Reference
In-Depth Information
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$
BR XH
BR ZH
BR YH
BR YL
BR XL
BR ZL
A
B
X
Y
Z
X H
Y H
Z H
X L
Y L
Z L
Source:
McCann (2008).
Figure 7.1
A three city one-dimensional economic geography
economy there are three cities, X , Y and Z . Cities X and Z are larger than
city Y , and all three cities exhibit two types of production, namely high
value goods and services H , and low value goods and services L . The high
value goods and services H are produced by those sectors for which the
spatial transactions costs have risen, while the low value goods and serv-
ices L are produced by those sectors for which spatial transactions costs
have fallen. For simplicity we also assume that the high value H sectors
are those which exhibit the agglomeration economies, precisely because of
the increasing spatial transactions costs of acquiring their inputs, whereas
the low value L sectors do not require any agglomeration effects precisely
because of the falling spatial transactions costs of acquiring their inputs.
Following urban economic theory we construct what are known as
bid-rent curves, whereby we plot what land prices firms are willing to
pay per square metre of land in order to be located at a particular loca-
tion, such that their profits are equalized across space. The curvature of
these bid-rent curves is described as being convex, and the reason for this
is either due to factor substitution (McCann 2001) or to the frequency of
interaction (McCann 2007). Firms with high spatial transactions costs
will have steeply-sloping bid-rent curves, whereas firms with low spatial
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