Regional income disparities in an OLG structure

This study examines a two-region OLG mode, in which parents educate their children and choose their location freely; that is, the population distribution and each worker’s productivity are determined endogenously. Owing to the setting of both agglomeration economies in wage and agglomeration diseconomies in utility and thereby different consumption patterns between regions, the present model represents a generation of inequality in educational level between regions even when households with equivalent education are given. Incentive for interregional segregation by educational level is also assumed and inequality is persistent in the result. This model demonstrates a development process starting with a low-developed initial state that represents population concentration accompanied with human capital growth and expansion of interregional inequalities. In addition, the effects of policies on long-run equilibria are addressed along with lock-in effects against these policies.