Texto para Discussão, Instituto de Pesquisa Econômica Aplicada (IPEA) 1361
This paper provides historical perspectives on regional economic inequalities in Brazil. It analyzes the changes in the spatial concentration of economic activities based upon data on the municipal distribution of the labor force by occupation from the Censuses of 1872 and 1920. The New Economic Geography provides the analytical framework to show how geography, transport costs and factor endowments gave industrial preeminence to the city of São Paulo and why the accelerated industrial growth had such a limited and delayed effects in the rest of the country. In short, the explanation lies in the significant reduction in transport costs brought by railroads associated with subsidized international migration as an institutional solution to the labor shortage problem. Estimation results show that the New Economic Geography is a tool to understand the roots of regional inequalities in Brazil. The model on the location of manufacturing activities in 1920 indicates the importance of transport cost, agglomeration forces and the externalities associated with overseas immigration in the spatial concentration of Brazilian industrialization.