@techreport{NBERw6921,
 title = "The Core-Periphery Model with Forward-Looking Expectations",
 author = "Richard E. Baldwin",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "6921",
 year = "1999",
 month = "February",
 URL = "http://www.nber.org/papers/w6921",
 abstract = {The 'core-periphery model' is vitiated by its assumption of static expectations. That is, migration (inter-regional or intersectoral) is the key to agglomeration, but migrants base their decision on current wage differences alone--even though migration predictably alters wages and workers are (implicitly) infinitely lived. The assumption was necessary for analytic tractability. The model can have multiple stable equilibria, so allowing forward-looking expectations would have forced consideration of the very difficult perhaps even intractable issues of global stability in non-linear dynamic systems. This paper's main contribution is to present a set of solution techniques partly analytic and partly numerical that allow us to consider forward-looking expectations. These techniques reveal a startling result. If quadratic migration costs are sufficiently high, allowing forward-looking behaviour has no impact on the main results, so static expectations are truly an assumption of convenience. If migration costs are lower, however, forward-looking behaviour creates history-vs-expectations considerations. In this case self-fulfilling prophecy.},
}