In this paper the authors present a general new economic geography model with multiple industries and regions, full labour and capital mobility, land use in production and consumption, and a dynamic adjustment process in which consumers maximise utility and firms respond to nonzero profits. All industries use intermediate inputs as well as land, labour, and capital. Systems of cities form endogenously within this framework, including asymmetrical urban hierarchies and cities of different sizes and industry compositions. Each urban area has a bid-rent gradient and zones with land uses and densities as in the von Thünen model. The equilibrium depends not only on initial conditions but also on speeds of adjustment. The model is a prototype for empirical implementation, as illustrated with a simulation of the effects of transportation cost reductions. (A)
Abstract