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. 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 asymmetric distribution of economic activities is one of the possible long-run outcomes. This is a remarkable result within the NEG literature. We then analyse the impact of international trade liberalisation on the dynamics of agglomeration conditional on the endowments of skilled and unskilled labour of the outside region. (authors' abstract)