Agglomeration economies, congestion diseconomies, and fertility dynamics in a two-region economy

Using a small, open, two-region economy model populated by two-period-lived overlapping generations, we analyze long-term agglomeration economy and congestion diseconomy effects of young worker concentration on migration and the overall fertility rate. When the migration-stability condition is satisfied, the distribution of young workers between regions is obtainable in each period for a predetermined population size. Results show that migration stability does not guarantee dynamic stability of the economy. The stationary population size stability depends on the model parameters and the initial population size. On a stable trajectory converging to the stationary equilibrium, the overall fertility rate might change non-monotonically with the population size of the economy because of interregional migration. In each period, interregional migration mitigates regional population changes caused by fertility differences on the stable path. Results show that the inter-regional migration-stability condition does not guarantee stability of the population dynamics of the economy.