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

agglomerative forces will be stronger for two reasons. First, the manufactured products will
have a bigger share in the bundle of consumption of a representative individual so the price-
index effect becomes more important. Second, he share of manufactures in world income will
be larger and therefore strengthens the backward linkage effect.

Critical values are decreasing in σ, the elasticity of substitution in demand. The range of
trade costs in which the core-periphery equilibrium occurs is greater the smaller is the
elasticity of substitution between varieties. Lower σ implies that consumers view different
varieties as being more distinctive, increasing their love of variety. The result is an
equilibrium with more varieties and a lower output of each. By decreasing σ, the magnitude
of scale economies, one of the agglomerative forces in the model is reduced. Finally an
increase in the strength of the positive externalities between high-skilled worker, λ, makes
agglomeration possible at higher level of trade costs.

5. CONCLUSION

This paper uses a version of the core-periphery model of trade and location by Krugman
(1991) to analyse the migration behaviour of workers with different skills in a process of
regional economic integration. Introducing labour heterogeneity in the basic core-periphery
model enables us to explain one of the most striking features of interregional migration
patterns, the positive self-selection of migrants.

In our model, the interaction between high-skilled workers in a region increases the
productivity of each worker by means of a knowledge diffusion process. Regions with a
higher average level of human capital are therefore more attractive for high-skilled workers.
The skill premium is endogenous and increasing in the regional quota of high-skilled
workers.

30

<<   27   28   29   30   31   32   33   >>

More intriguing information