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In new economic geography models, geographic concentration cant arise because of workers mobility or vertical linkages between firms. We examine a setup that combines those two approaches in conjunction with local congestion costs. We find that, as trade costs are lowered, the geographic concentration of total activity (agglomeration) follows an inverse u-shaped evolution, while the degree of specialization of regions increases. These results shed light on regional development within a countrydoi:10.11130/jei.2008.23.2.205 fatcat:v4ov5zfabvbhrewn4jjirndwbm