The impact of interregional and intraregional transportation costs on industrial location and efficient transport policies

Almost all models of the (New) Economic Geography have focused on interregional transportation costs to understand industrial location, considering regions as dots without intraregional transportation costs. We introduce a distinction between interregional and intraregional transportation costs. This allows assessing more precisely the effects of different types of transport policies. Focusing on two regions (a core and a periphery), we show that improving the quality of the interregional infrastructure, or of the intraregional infrastructure in the core region, leads to an increased concentration of activity in the core region. However, if we reduce intraregional transportation costs in the periphery, some firms transfer from the core to the periphery. From an efficiency point of view, we observe that, in absence of regulation, the concentration of firms is too high in the center. We show what set of policies improves the equilibrium.