LAUSR

The paper describes the formation of a rural-urban network in which urban areas decide to form links with other urban as well as rural regions. Furthermore, we illustrate how the presence of network can induce agglomeration . Urban areas are mainly production centers of manufacturing goods, and the rural regions that of agriculture. Both regions need to form a network to trade with one another. Network formation occurs in the presence of transportation and network formation costs. The equilibrium rural-urban network is formed when regions attempt to minimize transportation cost as well as the total cost of forming links in a network. The paper illustrates how network structure itself can create agglomeration apart from the processes described in the literature. Manufacturing firms locate to a single area to create a hub that has direct links to rural regions and rural-urban trade proceeds with minimum transportation costs and a minimum number of links.