This paper studies global stability of spatial configurations in a dynamic two-region model with quadratic adjustment costs where rational migrants make migration decisions so as to maximize their discounted future utilities. A global analysis is conducted to show that, except for knife-edge cases with symmetric regions, there exists a unique spatial configuration that is absorbing and globally accessible whenever the degree of friction is sufficiently small, and such a configuration is characterized as the unique maximizer of the potential function of the underlying static model. Journal of Economic Literature Classification Numbers: C61, C62, C73, F12, R12, R23.

Key Words: economic geography; multiple equilibria; forward-looking expectation; global stability; potential.

Journal of Economic Dynamics and Control 33 (2009), 394-408. PDF file
First draft: September 27, 2006; this version: June 19, 2008. PDF file