Working Paper: CEPR ID: DP2185
Authors: Gianmarco I.P. Ottaviano; Jacques-François Thisse
Abstract: This paper tackles the issue of the optimality of agglomeration in a two-region economy with skilled/mobile and unskilled/immobile workers. The market leads to the optimal outcome when transport costs are high or low. However, for intermediate values, it yields agglomeration whereas dispersion is socially desirable. We show that competitive lobbying on factor mobility by the two groups of workers sustains the second best optimum.
Keywords: integration; agglomeration; political economy; mobility
JEL Codes: F12; F22; R13; R38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| skilled labor mobility (J61) | agglomeration of the modern sector (R32) |
| intermediate transport costs (L91) | agglomeration (R11) |
| regional economic structure (R11) | welfare of unskilled workers (F66) |
| competition among interest groups (D72) | policy outcomes (D78) |