Melvin proposes application of the two-country model of neoclassical trade to the interregional economic structure of Canada, taking into account the costs of internal transport. He applies this basic theoretical approach to a number of different problems; taxation, capital flows between regions, short-run factor immobility, and increasing returns to scale. Melvin's findings indicate that tariffs induce resource waste by encouraging excessive internal transportation of goods between regions. He concludes that with an assessment of policy implications for Ontario arising from his study.