Regional Specialization and Technical Leapfrogging

This paper investigates circumstances where a region loses its technological leadership after some major technological breakthrough. Input-output linkages between firms in a Cournot upstream industry and a perfectly competitive downstream industry create forces for agglomeration in particular locations, driving up prices of immobile factors. A new technology that is incompatible with the old will not benefit from these linkages and so is more likely to be established in locations with little existing industry due to lower factor prices. Furthermore, in some circumstances the old and new technologies may coexist.