Abstract
Applying a dual technology model to economic geography, this paper studies the effects of regional integration on the location of labor and industrial activity in a Third World economy. Locational choice is a tradeoff between the benefits of agglomoration due to increasing returns to scale, and the benefits of dispersion due to a partly immobile labor force. The main result is that regional integration, in the form of a reduction in transportation costs, fosters a regional balance in economic activity and income. Government intervention may be justified for reasons of both inefficiency and inequality.
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