A Spatial Equilibrium Model for Region Size, Urbanization Ratio, and Rural Structure

Abstract

Earlier economic models of city size have either focused on urban agglomeration effects while ignoring the spatial structure of the rural hinterland, or made unrealistic assumptions (for example, uniform rural population distribution) so as to simplify the problem. Following the classic von Thünen framework, we present a two-sector spatial equilibrium model of a city located at the center of an agricultural hinterland. The city produces industrial goods, and the rural area produces agricultural goods. Both goods are consumed both by urban and by rural residents. Market equilibrium for these goods determines: (1) the spatial size of the region, (2) the urbanization ratio (urban to total population) and the population size of the city, and (3) the rural spatial structure (wage, population distribution, land rent, and agricultural yield). Given various sets of exogenous parameters pertaining to the industrial, agricultural, and transportation production functions and to population preferences, the model is solved numerically, and response functions are estimated and analyzed.