Castro, Sofia B. S. D, Correia da silva, Joao and Leite, Vasco (2013) A third sector in the core-periphery model: non-tradable goods. Annals of Regional Science, 50 (1). pp. 71-108.

Abstract

We extend an analytically solvable core-periphery model by introducing a monopolistically competitive sector of non-tradable goods that is mobile across regions. We find that when the elasticity of substitution among non-tradable goods is very low, there is agglomeration of all the production (of both tradable and non-tradable goods). When the elasticity of substitution among non-tradable goods is sufficiently high (“no black-hole” condition), then there is symmetric dispersion of all the production, if trade costs are high; or full agglomeration of the production of tradable goods with partial agglomeration of the production of non-tradable goods, if trade costs are low.