ECONOMIC GEOGRAPHY WITH TWO REGIONS: CAPITAL ACCUMULATION AND ECONOMIC STRUCTURE*

This paper proposes a compact two-region economic model with endogenous capital accumulation. The system produces one industrial commodity and service. Each region consists of one industrial sector and one service sector. The model describes the interaction between capital accumulation, the regional distribution of capital and labour, the division of labour, the capital distribution within each region, land rents, regional service prices and commodity prices over time and space. Accepting some simplifying assumptions, we show a way to integrate economic geography. equilibrium theory and neo-classical growth theory. We analyse how differences in regional resources such as land and amenities and the preference structure of the population may affect the equilibrium structure of economic geography.