The effects of regional differences in population and per capita human capital on income levels and economic growth rates are examined. Sufficient human capital heterogeneity can reduce specialization and inhibit the formation of large markets. The model contains static and dynamic agglomeration economies of market participation. Thus human capital heterogeneity can lower per capita income, and economic growth rates. Over time human capital accumulation reduces heterogeneity, thereby producing market expansion. Numerical solutions indicate that the first regions to integrate into a larger market are the higher human capital regions.
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