General equilibrium and the dynamics of hierarchical city systems and trade

Under the recent trend towards urbanization and regionalization of the world economic geography, cities are playing an increasingly important role as basic units of regional, interregional, and international trade. Since the central place theory of Christaller (1933), it has been widely recognized that individual cities in an economy do not exist in isolation, but together constitute a hierarchical system in which cities are functionally differentiated from one another. In particular, the self-reinforcing advantage of the second nature of geography or agglomeration economies has been identified as one of the most important reasons for the emergence of a hierarchical interdependence of cities. Given the recent development in spatial economics, it has become possible to build general equilibrium models of city formation by considering agglomeration economies. However, such models, faced with multiple equilibria, have not been successful in generating the hierarchical structure of the city system as an equilibrium solution. The multiplicity of equilibria becomes the problem, since the historical (or evolutionary) aspects are not considered in these models. In the present thesis, the importance of agglomeration economies and the historical aspects are taken into account in modeling the spatial structure of city systems. The spatial agglomeration force is generated from a circular causation of forward and backward linkages based on the scale economies in production and the product variety in consumption goods, while the spatial dispersion force is generated from the transport costs between the city and agricultural hinterland. The present thesis is novel in that it develops a so called evolutionary approach incorporating the historical aspects to the existing spatial model of city systems developed by Fujita (1992) and Fujita and Krugman (1993, 1994). This evolutionary approach is based on the natural requirement of stability and the set of equilibrium selection rules for city systems at each point in time, and has greatly reduced the indeterminacy of the evolutionary path of the economy\u27s spatial structure. In fact, it has been shown that as the economy\u27s population size increases, the city system organizes itself into a unique evolutionary path, generating a Christaller-type hierarchical system