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We study the effects of a decrease in inter-city transport costs on the spatial distribution of population in a multi-regional economy, when a rise in the regional population generates higher urban costs. Holding the number of cities constant, as transport costs are reduced gradually from a very high level to a very low level, there is a first phase in which large cities grow while small cities shrink, a second phase in which both large and small cities grow while medium size cities shrink, and a third phase in which large cities shrink while small cities grow. Furthermore, when the number of cities is allowed to vary as transport costs are reduced from large to small values, it first decreases and then increases. Copyright 2005, Oxford University Press.