DEVELOPMENT OF A SPATIAL COMPUTABLE GENERAL EQUILIBRIUM MODEL WITH FACTOR MOBILITY AND AGGLOMERATION ECONOMIES

Abstract

 This study develops a spatial computable general equilibrium model that considers agglomeration economies and mobility of production factors, including labor and capital. To this end, we extend the new economic geography models of industrial location and agglomeration with factor mobility. We then present parameter estimation and calibration procedures and an approach for obtaining the stable equilibrium that emerges with changes in structural parameters. Applying these methods, this study quantifies the effects of the trade cost reductions in Japan to clearly describe characteristics of the developed model.