International integration and regional inequalities

Within a 2 Country-4 Region setting we study the impact of a reduction in international transport costs over the localisation of firms inside countries.We find that even when countries are symmetrical, but as long as regions within countries are not entirely identical (whatever the differences), a decrease of international transport costs leads to more agglomeration in one of the regions. We investigate two cases, one in which regions within countries are of di.erent sizes, and the other where one of the regions has some comparative advantage in the production of the industrial good.