Third World regional integration

Applying a dual technology model to economic geography, this paper studies the effects of regional integration on the location of labor and industrial activity in a Third World economy. Locational choice is a tradeoff between the benefits of agglomoration due to increasing returns to scale, and the benefits of dispersion due to a partly immobile labor force. The main resul t is that regional integration, in the form of a reduction in transportatio n costs, fosters a regional balance in economic activity and income. Govern ment intervention may be justified for reasons of both inefficiency and ine quality. (C) 1998 Elsevier Science B.V. All rights reserved.