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Abstract

Some rural development strategies are based on the assumption that quality labels may act as levers for inducing economic growth and population migration to rural areas. To investigate the validity of this assumption, we use a new economic geography model. A specific (“labelled”) agricultural good is assumed to be produced by farmers who co-operate in order to set a monopoly price and control the number of producers. We find that there is a trade-off between the number of differentiated farmers and their individual income. Besides, the positive effect of agricultural differentiation on rural industrialization, due to increased demand for industrial goods, is offset by an opposite effect due to urban wages rise. Higher transport costs for the specific good favour rural industrialization but limit the size of the differentiated agricultural sector.

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