Working Paper: CEPR ID: DP1575
Authors: Diego Puga
Abstract: This paper analyses how the degree of regional integration affects regional differences in production structures and income levels. With high transport costs, industry is spread across regions to meet final consumer demand. As transport costs fall, increasing returns interacting with labour mobility and/or input-output linkages between firms create a tendency for the agglomeration of increasing returns activities. When workers migrate towards locations with more firms and higher real wages, this intensifies agglomeration. When workers do not move across regions, further reductions in transport costs make firms increasingly sensitive to wage differentials, and may lead industry to spread out again.
Keywords: agglomeration; regional integration; core-periphery; migration; linkages
JEL Codes: F12; F15; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decreasing transport costs (R41) | increased agglomeration (R11) |
| lack of labor mobility (J69) | counteracts agglomeration effect (R32) |
| low labor mobility in Europe (J69) | exacerbates income disparities (I24) |
| agglomeration of industry (R32) | divergent real wages in absence of interregional labor mobility (J69) |