policymakers demonstrate

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8.4.2 Is the Core-Periphery Structure Inefficient?
Thus far, NEG has been unable to provide a clear-cut answer to this fundamental
question. However, a few results seem to show some robustness. In the core–
periphery model, the market outcome is socially desirable when transport costs
are high or low. In the former case, activities are dispersed; in the latter, they
are agglomerated. In contrast, for intermediate values of these costs, the market
leads to the over-agglomeration of the manufacturing sector (Ottaviano and
Thisse, 2002). Furthermore, when transport costs are sufficiently low, agglomeration
is preferred to dispersion in the following sense: people in the core
regions can compensate those staying in the periphery through interregional
transfers, whereas those staying in the periphery are unable to compensate those
workers who choose to move to what becomes the core regions (Charlot et al.,
2006). This suggests that interregional transfers could be the solution for correcting
regional income disparities. It is worth stressing that such transfers do
not rest here on equity considerations, but only on efficiency grounds. However,
implementing such transfers, paid for by those who reside in the core regions,
may be politically difficult to maintain in the long run. In addition, they may
give rise to opportunistic behaviour in the periphery.
Tackling this issue from a dynamic perspective sheds additional light on the
problem. It has long been argued that growth is localized, the reason being
that technological and social innovations tend to be clustered while their diffusion
across places would be slow. For example, Hirschman (1958) claimed
that ‘we may take it for granted that economic progress does not appear
everywhere at the same time and that once it has appeared powerful forces
make for a spatial concentration of economic growth around the initial starting
points’. And Hohenberg and Lees (1985) argued similarly that, ‘despite the
rapid growth of urban industries in England, Belgium, France, Germany and
northern Italy after 1840 or so, economic development was a spatially selective
process. Some regions deindustrialized while others were transformed by new
technologies’.
Fujita and Thisse (2013) revisit the core–periphery model in a set-up combining
NEG and endogenous growth theory; the high-skilled, who work in
the R&D sector, are mobile whereas the low-skilled, who work in the manufacturing
and agricultural sectors, are immobile. These authors show that the
growth rate of the global economy depends positively on the spatial concentration
of the R&D sector. Furthermore, the core–periphery structure in which
both the R&D and manufacturing sectors are agglomerated is stable when transport
costs are sufficiently low. This result gives credence to the idea that global
growth and agglomeration go hand in hand. But what are the welfare and equity
implications of this geography of innovative activities? The analysis undertaken