Agglomeration, agricultural transport costs and economic geography

Abstract

The role of agricultural transport costs in the spatial distribution of economic activity has habitually been ignored in New Economic Geography (NEG) literature. This is due to the convention of treating the agricultural good as the numéraire, thus implying that agricultural transportation costs are assumed to be zero in NEG models. This conceptual drawback undeniably limits the study of the spatial patterns of agglomeration, an essential aspect when moving from theory to empirical analysis and policy making. The thesis contributes to the discussion of the impact of agricultural transport costs on the spatial configuration of economic activity in Peru. The issue is addressed by three approaches. First, a regional approach where agricultural transport costs generate flows that are systematically associated with flows to or from nearby regions generating the emergence of spatial spillovers across Peruvian regions. Second, an industry sector approach that examines the impact of agricultural transport costs upon the manufacturing industries’ incentives to agglomerate or to disperse. Under this approach, agricultural transport costs operate as both agglomeration and dispersion forces, influencing differently according to sectors in the spatial localisation of manufacturing industries in Peru. Third, a policy making approach that examines how agricultural transport costs, neighbouring effects and other location factors contribute to shaping high-return areas in Peru. These factors are used to construct a typology of districts that is proposed to help policymakers to prioritise industrial policies. The results of the thesis show that agricultural transport costs are crucial in defining the spatial configuration of economic activities in Peru, where an important part of its population is devoted to agricultural activities