Endogenous growth theories: agglomeration benefits and transportation costs

We propose a simple theoretical framework to study the impact of infrastructure on economic growth and regional unbalances. The framework presents in a unified way the main insights of NEG models with endogenous growth and free capital mobility. Two main results stand out. First, there is a trade off between growth and regional equality as improved infrastructure in developed ‘core’ regions fosters both agglomeration and growth, which are instead hampered by improved infrastructure in developing ‘peripheral’ regions. Second, better interregional connections may increase rather than decrease regional inequality as improved transport and communication infrastructure between core and peripheral regions fosters not only growth but also agglomeration. Nonetheless, increased agglomeration does not necessarily imply the impoverishment of peripheral regions as long as its positive impact on growth is strong enough.