The core model of geographical economics takes the spatial equilibrium concept a step further. In contrast to urban economics, spatial interactions between different locations or regions are essential. Regions are connected by introducing transportation costs between different locations. Real wage differences between regions determine migration flows; these flows continue until real wages between regions are the same and a long-run equilibrium is established. The model is an extension of the well-known monopolistic competition model that is popular in international trade theory. In contrast to trade theory, the geographical economics model involves labour mobility between regions. The model is characterized by multiple equilibria that can either be stable or unstable.
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