Integrating macroeconomics and economic geography: the neoclassical growth model in spatial general equilibrium

Abstract

ABSTRACT The neoclassical growth model and the Roback model of spatial general equilibrium (SGE) are integrated to study the joint determination of macroeconomic phenomena (gross domestic product (GDP) and the rate of interest) and spatial economic phenomena (the spatial distribution of gross regional product (GRP), employment and capital). If internal capital mobility is perfect and regional savings rates are homogeneous, GDP depends on SGE, but SGE does not depend on GDP. If saving rates are spatially heterogeneous, GDP and the rate of interest depend on SGE, but SGE does not depend on the rate of interest and GDP. If in addition capital is imperfectly mobile, macroeconomic outcomes such as GDP, the rate of interest and SGE are jointly determined. In general, therefore, the dichotomy between macroeconomics and economic geography breaks down.