Core-Periphery Equilibrium Dynamics under Uncertainty

Nonlinear Complementarity Approach

Abstract

We propose a novel long-term migration dynamics that can overcome the equilibrium indeterminacy of Core-Periphery (CP) model a la Krugman [1991d] This goal is achieved by introducing uncertainty of economic environment into CP model with forward-looking migration dynamics. We first disclose that the equilibrium condition of migration dynamics can be represented as a NCP (Nonlinear Complementarity Problem) and then develop an efficient solution algorithm for the problem. We demonstrate from a numerical experience that an equilibrium path of migration dynamics can be uniquely determined in accordance with each stochastic sample path.