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Skills, Agglomeration and Segmentation

  • Tomoya Mori

    (Institute of Economic Research, Kyoto University)

  • Alessandro Turrini

    (Department of Economics, University of Bergamo; Centro Studi Luca d´Agliano)

We investigate the role of skill heterogeneity in explaining location patterns induced by pecuniary externalities (Krugman (1991)). In our setting, sellers with higher skills perform better in the marketplace, and their sales are larger. Selling to distant locations leads to lower sales because of both (pecuniary) transport costs and communication costs that reduce the perceived quality of goods. A symmetry-breaking result is obtained: symmetric configurations cannot be stable, and regional inequality is inevitable. The relatively more skilled choose to stay in the location with higher aggregate income and skill, while the relatively less skilled stay in the other. The model allows us to analyse the links between the extent of interregional inequality and the extent of interpersonal skill inequality.

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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 141.

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Date of creation: 01 Jun 2000
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Handle: RePEc:csl:devewp:141
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