Which Has Stronger Impacts on Regional Segregation: Industrial Agglomeration or Ethnolinguistic Clustering?

We investigate how regional segregation patterns are affected by industrial agglomeration and ethnic clustering, by adding the externality of ethnicity to the model of agglomeration and trade proposed by Ottaviano et al. (2002. Agglomeration and trade revisited, International Economic Review, 43, 409–436). We show that ethnic segregation patterns are persistent, while ethnic mixing distribution appears only when trade costs are intermediate and ethnicity clustering preferences are less intense. Further, discrepancies of the social optimum and equilibrium are caused because the social optimum is less sensitive to a change in trade costs, when the population of farmers (immobile factors affecting ethnicity utilities) is sufficiently large.