The economy is assumed to reach instantaneously a short-run equilibrium for any given
allocation of workers between regions. The solution of the set of equations (25)-(27)
determines wι and w2 for which (i) consumers maximise utility (ii) profits are both
maximised and driven to zero by free entry (iii) all markets clear.
4. SPATIAL EQUILIBRIA
In the long-run, in the absence of migration costs, real wage differentials are the only
determinant in the decision of low and high-skilled workers to move from one region to the
other. The regional share of both types of workers adjust according to the real wage
difference:
Ui = χ(ω1 - ωu ) = χ(ωu )
S = χ(ωs - ω2)=χ(ω )
χ ' > 0
(30)
where χ is a function increasing in ωu and ωs, which represent the regional real wage
differentials for low- and high-skilled workers. Regional migration flows to region 1 are
positive if workers enjoy a higher level of utility (i.e. higher real wages) by moving in this
region.
We would like to determine when the long-run equilibrium will exhibit regional
convergence (symmetric equilibrium), and when it will lead to a core-periphery structure
with all workers and manufacturing sector concentrated in one region. In addition, we are
interested in determining whether, in the long-run, the migration pattern will exhibit the
feature of favourable self-selection of the migrants. To answer these questions we have to
consider the local stability of these equilibria. Let consider the case where the world economy
21