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

increases the productivity of each worker by means of a knowledge diffusion process. In the
model the skill premium is endogenous and increasing in the regional quota of high-skilled
workers.⁵

We analyse the migration behaviour of low and high-skilled workers in a process of
regional economic integration. At a given level of trade costs, due to the productivity
premium associated with the high-skilled matching in one region, this type of workers will be
more willing to migrate than low-skilled ones. The results of the paper show the existence of
a range of trade costs for which only high-skilled workers have an incentive to migrate.
Therefore 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 the migrants. Another important implication of the model is the existence of a
persistent wage and productivity differential between the core and peripheral regions, a result
which is supported by a recent strand of empirical literature.

The paper is organized as follows. In section 2, we present recent empirical evidence on
agglomeration and human capital externalities. Section 3 develops the model. In Section 4 we
examine the possible spatial equilibria and their features. Section 5 concludes.

5

According to Glaeser (1998), firms choose to locate in cities and pay the higher wages and suffer congestion
costs because workers in cities are more productive: "...if workers weren't more productive firms would leave
cities altogether and hire elsewhere. Since the urban wage premium appears to be a centuries-old phenomenon,
we must assume that over the long run, firms are quite willing to pay these higher wages".

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