Munich Personal RePEc Archive

Good Governance, Trade and Agglomeration

Candau, Fabien (2006): Good Governance, Trade and Agglomeration.

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Abstract

We develop a model for developing countries that investigates the factors behind agglomeration of activities in urban giants. Firstly we show that relatively easier market access to external demand provided by the urban giant tends to attract entrepreneurs to this place. Secondly we find that the attractive power of the urban giant can be linked to a lack of democracy. Indeed we demonstrate that democracy acts as a dispersive force in the sense that by reversing the cost of living effect, it allows to reduce the spatial inequality and then the tendency of agglomeration. Lastly we analyse how the funds embezzled by a bad government vary according to internal and external trade liberalisation. We show that a decrease in the disadvantage of the periphery to trade with the external market can limit the funds embezzled by a Leviathan.

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