Divergent regional development, factor mobility, and nontraded goods

Using an endogenous growth model with learning-by-doing effects in the production of a traded good, we derive divergent regional-growth paths in a two-region-three-good setting. A nontraded-goods sector using a mobile as well as an immobile factor of production provides the possibility of a steady-state equilibrium with a dispersed distribution of mobile workers. The paper investigates regional specialization, trade, and migration patterns in the steady-state equilibrium as well as in the transition process towards the steady-state. The long-run production and trade patterns of the regions are determined by history-dependent processes.