interregionally immobile farm labourers (sector-specific factor). We assume that the unit
labour requirement is one.
Manufacturing is a monopolistically competitive sector producing a variety of
differentiated products with increasing-return-to-scale technology and employs
interregionally mobile workers. We assume the existence of two types of workers in the
manufacturing sector, which differ only in terms of the level of efficiency unit of labour
supplied.
3.1 Consumers ’-worker’ ’ behaviour
All individuals share the same Cobb-Douglas utility function:
U = M μ A1μ (1)
where M is a quantity index of consumption of manufactured goods and A is consumption of
the agricultural good. Therefore μ is the expenditure share of manufactured goods. The
manufacturing aggregate M, is a sub-utility function of a discrete number of varieties defined
by a constant elasticity of substitution function:
1/ρ
σ
σ-1
(2)
7 According to the authors, in the U.S. a worker in the most productive state is two-thirds more productive than a
worker in the least productive state.
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