Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:22: Increasing Returns, Input-Output Linkages, and Technological Leapfrogging

Fredrik Gallo ()
Additional contact information
Fredrik Gallo: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Firms agglomerate in one region due to increasing returns, input-output linkages and transportation costs. In the de-industrialised region factor prices are lower and a new technology may be profitable to adopt in that region instead, inducing a change in the technological leadership. This paper shows that the risk of locking in to an old technology is monotonically increasing in the benefits of agglomeration. Greater incompatibility between technologies also increases the risk of rejecting potentially superior manufacturing processes.

Keywords: agglomeration; lock-in; new economic geography; technological leapfrogging

JEL-codes: F12; F43; O33

28 pages, First version: March 11, 2005. Revised: July 19, 2006.

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