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Acquisition of Skills, Education Subsidies, and Agglomeration of Firms


  • Toulemonde, Eric

    () (University of Namur)


An analytically solvable model of new economic geography is developed. Acquisition of skills is costly for workers but it allows them to earn wages that are larger than those of the unskilled. Moreover, skills acquisition can be subsidized by a regional government. For large transport costs, firms spread more or less evenly between regions, their precise location being determined by the level of education subsidies. For low transport costs, firms agglomerate in one region. We also identify equilibria with partial agglomeration of firms. Finally, we show that the incentives to subsidy education largely depend on the level of transport costs.

Suggested Citation

  • Toulemonde, Eric, 2003. "Acquisition of Skills, Education Subsidies, and Agglomeration of Firms," IZA Discussion Papers 939, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp939

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    education; economic geography; subsidies;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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