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

21 Pages Posted: 21 May 2002

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

Abstract

A general equilibrium model with increasing return to labour specialisation and economies of transaction agglomeration is developed to address the residential land-rent escalation associated with the urbanisation process, which is in turn endogenised as a result of the evolution of the division of labour. The interplay among the geographical pattern of transactions, trading efficiency and the network size of the division of labour plays a crucial role in our story of urbanisation. We show that: as transaction conditions are improved, the equilibrium level of division of labour and individuals specialisation 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.

Suggested Citation

Sun, Guang-Zhen and Yang, Xiaokai, Agglomeration Economies, Division of Labour and the Urban Land-Rent Escalation: A General Equilibrium Analysis of Urbanisation. Available at SSRN: https://ssrn.com/abstract=313213

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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