Analytical Characteristics of the Core-Periphery Model

The authors propose a novel approach to analyze core-periphery models. By expressing the model in terms of relative wages, the authors characterize market equilibria and full equilibria in which no migration incentives exist. The authors reconsider Krugman's model and show that full equilibria are determined by a single function of relative nominal wage rates. This allows them to analytically derive the stability properties of all full equilibria. They further show that migration is more driven by differences in the price index than by differences in the nominal wage rate.new economic geography; labor mobility; agglomeration