City formation by dual migration of firms and workers

Abstract: This paper studies a mathematical model of city formation by migration of firms and workers. The Core-Periphery model in the new economic geography, which considers migration of workers driven by real wage inequality among regions, is extended to incorporate migration of firms driven by real profit inequality among regions. Spatially homogeneous distributions of firms and workers become destabilized and eventually forms several cities in which both the firms and workers agglomerate, and the number of the cities decreases as transport costs become lower.