Where do cities form? A geographical agglomeration model for Europe

In the recent literature on spatial agglomeration models, substantial progress has been made in modeling urban structures in terms of number and size of cities, but the question where cities arise remains unanswered. This paper illustrates that if a spatial agglomeration model is extended with a true geographical dimension, the location of cities can also be endogenized. A geographical agglomeration model for Europe shows that the size and place of cities can be simultaneously determined. The empirical results suggest that elementary economic forces such as agglomeration economies and transportation costs might be able to explain place and size of cities in the long run to a substantial degree. In addition, some new statistical measures of fit are discussed that are needed to evaluate simulations results of this kind.