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