Concentration, congestion, and the dynamics: Spatial re-modeling of the Murphy, Shleifer, and Vishny model

Based on spatial dimension to agglomeration, this paper investigates economic concentration and congestion. Departing from the Murphy, Shleifer, and Vishny model, where the two equilibria of the poverty trap and full industrialization are discussed, this paper suggests the possibility of partial industrialization. Unlike the original model in which fixed cost F and productivity α are assumed to be constant, the author argues that both F and α are non-monotonic functions of n (number of entering monopolist firms), and that an economy stays in a partial industrialization state when congestion effects and external diseconomies are dominant. However, some situations are dynamic in the sense that they may reach the status of full industrialization as long as an economy overcomes congestion problems.