Agglomeration, Integration, and Territorial Authority Scale in a System of Trading Cities. Centralisation Versus Devolution

Abstract

This paper emphasises the importance of the political-institutional dimension in the understanding of the spatial distribution of economic activity. We introduce the notion of Territorial Authority Scale, which refers to the degree of devolution (towards subnational tiers of government) involved in the authority to decide on Spatial Policy, and propose a model of agglomeration in a system of cities in which both intra-city trade and inter-city trade are considered. Enriching both the literature on integration/agglomeration and that on city size and formation, we show that: i) devolution results in over-agglomeration (fewer cities, which tend to be over-sized) and low welfare; ii) the higher the level of spatial (i.e. transport costs) and economic (i.e. intensity of trade) integration, the higher is the magnitude of the inefficiency. From a theoretical point of view, the paper represents an attempt to import, into geographical economics, a scale approach, which is an established approach to the notion of space in sociology.

Keywords: Agglomeration, integration, cities, devolution, economic geography, transport costs, spatial policy, trade, product variety, linkages

JEL Classification: F12, F15, L11, L13, R12, R13, R59