Regional Intergration and Migration: An Economic Geography Model with Hetergenous Labour Force



An increase in the regional size works through changes in the variety of goods (firms)
available, leaving inalterated both mark-up over marginal cost and the scale of individual
production. The equilibrium number of firms is therefore proportional to the region’s
effective population of workers:

n1 = Ll
n 2 L2

(21)


3.5 Equilibrium conditions in goods and labour markets

In equilibrium the optimal output for any firm should be equal to the demand for its product
in both regions:

*        ..

X1 = μ



Y2


*      ..

X 2 = μ


f (P2T)-σ Y

[ P-i) 1



[ P2-(σ-i)


Y2


(22)


After some manipulation, using the pricing rule equation, we obtain the following
expression for the nominal wages at which each firm breaks even:


(23)

' σ -1 '

< ασ /


18




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