Regional integration, international liberalisation and the dynamics of industrial agglomeration

This paper presents a 3-region footloose-entrepreneur new economic geography model.
Two symmetric regions are part of an economically integrated area(the Union),while the
third region represents an outside trade partner. We explore how the spatial allocation of
industrial production and employment within the Union is affected by changes in two
aspects of trade liberalisation, regional Integration and globalisation, conditional to the
skill endowment and the market size of the outside region. Our main contribution pertains to the analysis of the local and global dynamics of the specified factor mobility
process. We show that significant parameter ranges exist for which an asymmetric distribution of economic activities is one of the possible long-run outcomes which may
allow a smooth transition to Agglomeration (in contrast to the NEG typical catastrophic scenario .In addition, we show that multistability is pervasive and that some attractors are Milnor attractors. Both results reinforce the NEG narrative on the importance of initial
conditions for the long-run Location of industrial activity.