Spatial Disparities in Developing Countries: Cities, Regions and International Trade

Spatial inequality in developing countries is due to the natural advantages of some regions relative to others and to the presence of agglomeration forces, leading to clustering of activity. This paper reviews and develops some simple models that capture these first and second nature economic geographies. The presence of increasing returns to scale in cities leads to urban structures that are not optimally sized. This depresses the return to job creation, possibly retarding development. Looking at the wider regional structure, development can be associated with large shifts in the location of activity as industry goes from being inward looking to being export oriented.