Heterogeneity, trade integration and spatial inequality

Abstract

We study the impact of economic integration on agglomeration in a model where all consumers are inter-regionally mobile and have heterogeneous preferences regarding their residential location choices. This heterogeneity is the unique dispersion force in the model. We show that, under reasonable values for the elasticity of substitution among varieties of consumption goods, a higher trade integration always promotes more symmetric spatial patterns, reducing the spatial inequality between regions, irrespective of the functional form of the dispersion force. We also show that an increase in the degree of heterogeneity in preferences for location leads to a more even spatial distribution of economic activities and thus also reduces the spatial inequality between regions.