Exogenous regional productivity asymmetries in a core-periphery model [Comunicação oral]

Abstract

We study how regional asymmetries in firms’ productivity affect the spatial distribution of economic activity and social welfare. We introduce an exogenous regional asymmetry in the two-region quasi-linear log utility footloose entrepreneur model to explore how the regional framework alone can affect firms’ productivity that would otherwise be homogeneous across regions. We find that the agglomeration of entrepreneurs in the most productive region is stable as long as transportation costs are not too high. We also find that while the concentration of most entrepreneurs in the least productive region may be stable, the concentration of most entrepreneurs in the most productive region is always stable when it occurs. Finally, we conclude that the spatial distribution of an economy moves closer to the one that ensures optimal social welfare as firms’ market power diminishes and that, in general, society would be better off if the most productive region did not concentrate as many entrepreneurs.