Agglomeration Economies, Division of Labor and the Urban Land-Rent Escalation: A General Equilibrium Analysis of Urbanization

31 Pages Posted: 22 Aug 2001

See all articles by Guang-Zhen Sun

Guang-Zhen Sun

Monash University - Department of Economics; Max Planck Institute for Research Into Economic Systems

Xiaokai Yang

Monash University - Department of Economics

Date Written: April 2001

Abstract

A general equilibrium model with increasing return to labor specialization and economies of transaction agglomeration is developed to address the residential land-rent escalation associated with the urbanization process, which is in turn endogenized as a result of the evolution of the division of labor. The interplay among the geographical pattern of transactions, trading efficiency and the network size of the division of labor plays a crucial role in our story of urbanization. We show that: as transaction conditions are improved, the equilibrium level of division of labor and individuals' specialization levels increase; the urban land-rent increases absolutely as well as relative to that in the rural area, the relative per capita lot size of residence in the urban and rural areas decreases; the diversity of occupations in the urban area and the population share of urban residents increase; and the productivity of all goods and per capital real income increase.

Keywords: Division of labor, Economies of transaction agglomeration, General equilibrium, Geographical pattern of transactions, Residential land-rents, Transaction costs, Urbanization

JEL Classification: O18, R11, R14, R33

Suggested Citation

Sun, Guang-Zhen and Yang, Xiaokai, Agglomeration Economies, Division of Labor and the Urban Land-Rent Escalation: A General Equilibrium Analysis of Urbanization (April 2001). Available at SSRN: https://ssrn.com/abstract=278689 or http://dx.doi.org/10.2139/ssrn.278689

Guang-Zhen Sun (Contact Author)

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia
61-3-99052409 (Phone)
61-3-99055476 (Fax)

Max Planck Institute for Research Into Economic Systems

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

Xiaokai Yang

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia
+61-3-99052448 (Phone)
+61-3-99055476 (Fax)

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