Premature agglomeration?: Two phases of development with spatial sorting

Abstract

AbstractClusters in the developing world do, to a large extent, attract low‐educated individuals, and these clusters are in some cases, characterized by urbanization without industrialization. This contrasts starkly to clusters in advanced economies that attract high‐skilled individuals and entrepreneurs. In this paper, we develop a model of agglomeration and spatial sorting that is consistent with these two types of different agglomeration processes in developed and developing countries. We show that a poor country that has an agglomeration with low skilled individuals, may get stuck in this equilibrium, but that free mobility of human capital from the outset nevertheless is superior from the perspective of total social welfare.