On the Evolution of a Multi-regional System

We study the effects of decrease in trade costs on the spatial distribution of industry in multi-regional economy, when a rise in the regional population of workers generates higher urban costs. We show that high and low trade costs imply the all regions involve positive share of the industrial sector. When urban costs are linear, there exists stable equilibrium for almost all values of trade costs. Furthermore, as trade costs fall, there is path of stable equilibria such that the industry is, first, agglomerated into a decreasing number of regions and, then, dipersed among a growing number of regions. The second phase arises because of the increasing urban costs associated with the process of agglomeration.