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

1. INTRODUCTION

It is a matter of record that pronounced regional disparities are very persistent in many EU
countries. The spatial distribution of economic activity is far from uniform and economic
agglomeration can be observed at all geographical levels.

The main focus of a recent strand of research has been the origins of such spatial
inequalities and to investigate the effects of increased regional integration on the degree of
spatial agglomeration. In the basic model of Krugman (1991), the interaction between
interregional labour migration, scale economies, transport costs and a spatially immobile
source of demand generates forces of both agglomeration and dispersion. Since some factors
of production are spatially mobile, when transport costs fall below a critical level,
agglomerative forces become strong enough to give rise to a core-periphery structure.
Therefore, even if regions are a priori identical, due to migration-induced demand linkages,
they can endogenously differentiate into an industrial core and a deindustrialised periphery.¹

It has been argued that while this approach is relevant for studying agglomeration
within national boundaries, in the EU context low rates of migration seem to limit the role of
labour mobility as a driving force for agglomeration. Empirical studies suggests that although
such an adjustment process works through regional migration in the US (Blanchard and Katz
1992), in Europe very little migration across European countries is observed despite large
intercountry wage differences (Decressin and Fatàs 1995). This difference in the adjustment
mechanism between the US and the European labour markets is still remarkable even if we
consider internal migration within European countries.

While the rates of internal and international migration have been very low, several
studies have demonstrated that some groups of individuals are more geographically mobile

¹ For a survey of the New Economic Geography literature see Fujita et al (1999), Ottaviano and Puga (1998), or
more recently Neary (2000).

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