Integration, agglomeration and the political economics of factor mobility

This paper tackles the issue of the optimality of agglomeration in a two-region economy with skilled/mobile and unskilled/immobile workers. The market leads to the optimal outcome when transport costs are high or low. However, for intermediate values, it yields agglomeration whereas dispersion is socially desirable. The reasons for this inefficiency are then analyzed. Finally, we show that competitive lobbying on factor mobility by the two groups of workers sustains the second best optimum. (C) 2002 Elsevier Science B.V. All rights reserved.