Transport Costs and Rural Development

Abstract

Innovations that reduce costs of transport from rural locations may also reduce transport costs to rural areas. As transport costs fall, producers can afford to concentrate and achieve economies of scale. This paper explains an initially negative, but ultimately positive, relationship between reductions in transport costs and rural development. A two‐region general equilibrium model with firm and worker spatial mobility highlights the firm and household location implications of costly transport‐service use by both industry and agriculture in the context of scale economies and product differentiation. The computable general equilibrium model is initialized and verified with a bi‐regional social accounting matrix and then used for simulations. Changes in relative transport costs are shown to affect relative regional wage rates, thus also determining the location of “production‐cost‐oriented” firms.

Agglomeration and Market Interaction

“…In the first one, when workers' migration costs are sufficiently large (δ is such that γ > 2 Cδτ (τ * − τ )), the outcome of the migration dynamics is the same as the one described in Section 3.3. In other words, the equilibrium path is not consistent with (29), thus implying that expectations do not matter.…”

“…It is worth stressing that the reasons that lead to dispersion in the first and third phases are different: in the former, the modern sector is dispersed because the cost of shipping its output is high; in the latter, dispersion arises because the periphery develops some comparative advantage in terms of labor cost. (Kilkenny, 1998). For example, if both costs decrease proportionally, it can be shown that re-dispersion never occurs.…”

“…When τ > τ * this steady state is globally stable. So, for the assumed belief (29) to be consistent with equilibrium, it must be τ < τ * . Then, the study of the eigenvalues of the system (32)- (33) shows that two cases may arise.…”

“…More precisely, there exist two threshold values for the transport costs τ 1 < τ * /2 < τ 2 < τ * , as well as two boundary values λ 1 < 1/2 < λ 2 < 1 such that the equilibrium path is consistent with (29) if and only if τ ∈ (τ 1 , τ 2 ) and λ 0 ∈ [λ 1 , λ 2 ]. Namely, as long as obstacles to trade take intermediate values and regions are not initially too different, the region that becomes the core is determined by workers' expectations.…”

Comercio internacional libre y las consecuencias para las áreasrurales europeas

“…In addition, the congestion effect is largely ignored in the Krugman type approach, which would also favor dispersion after a certain threshold. The existence of other rural activities than agriculture, for which transportation costs are different, may invert the dynamics and generate dispersion forces, as illustrated by Kilkenny (1998).…”