TRADE LIBERALIZATION, FACTOR MOBILITY, AND REGIONAL GROWTH

Incorporating aspects of economic geography in an endogenous growth mo del, we consider the long-run effects of deeper regional integration i n a two region-setting. We derive conditions for an interior solution with development and production of new goods taking place in both regi ons and conditions for a core-periphery pattern with R&D and productio n of new goods occurring in only one region. In this framework, we fin d a non-monotonous relation between tariff reductions and steady-state growth. Starting from low tariffs, trade liberalization fosters growt h. Reductions of barriers to migration always have a nonnegative growt h rate effect. With an interior solution, both policies lead to concen tration of production.