Intermediate goods and the spatial structure of an economy

We develop a monopolistic competition model of spatial economy in which man ufacturing requires a large variety of intermediate goods. The economy yiel ds two types of monocentric configurations: an integrated city equilibrium (I-specialized city equilibrium) when transaction costs of intermediate goo ds are high (low). In the former, both manufacturing and intermediate secto rs agglomerate in a single city. In the latter, the city is specialized in the provision of intermediate goods. When the economy is in an integrated c ity equilibrium, it is in a primacy trap such that population growth alone never leads to the formation of new cities. (C) 2001 Elsevier Science B.V. All rights reserved.