The Rise and Fall of Regional Inequalities

London School of Economics CEP Disc. Paper 314

43 Pages Posted: 2 May 1997

See all articles by Diego Puga

Diego Puga

IMDEA Social Sciences; University of Toronto - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: March 1997

Abstract

This paper analyzes 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 labor 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, instead, workers do not move across regions, further reductions in transport costs make firms increasingly sensitive to wage differentials, leading industry to spread out again.

JEL Classification: F12, F15, R12

Suggested Citation

Puga, Diego, The Rise and Fall of Regional Inequalities (March 1997). London School of Economics CEP Disc. Paper 314. Available at SSRN: https://ssrn.com/abstract=39142 or http://dx.doi.org/10.2139/ssrn.39142

Diego Puga (Contact Author)

IMDEA Social Sciences ( email )

Calle Veláquez 76
Madrid, 28001
Spain

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4375 (Phone)
416-978-6713 (Fax)

HOME PAGE: http://dpuga.economics.utoronto.ca/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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