City formation by dual migration of firms and workers

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 the single migration of workers driven by real wage inequality among regions, is extended to incorporate the migration of firms driven by real profit inequality among regions. In this dual migration model, it is found that the behavior of the solutions is qualitatively similar to that of solutions of the single migration model, which is frequently used in the new economic geography (NEG). That is, 1) spatially homogeneous distributions of firms and workers become destabilized and eventually form several cities where both firms and workers agglomerate; 2) The number of cities decreases as transport costs decrease. The results have provided a more general theoretical justification for the use of the single migration models in NEG.