A footloose entrepreneur model with productivity heterogeneity in two regions

This article introduces the productivity heterogeneity of Melitz, M. J. (2003). Econometrica , 71(6), 1695–1725 into the footloose entrepreneur model of Forslid, R., and Ottaviano, G. I. (2003). Journal of Economic Geography , 3(3), 229–240 to explore the industrial spatial distribution between two regions. We suggest a negative relationship between the shape parameter of the Pareto distribution and the share of skilled workers in a region. It enhances the escape competition effect to avoid agglomeration when the share of skilled workers in a region increases to generate intensified competition. This effect allows the equal distribution outcome to be sustained for a larger range of transport costs.