BERLIN, N.H. -- The setting for this worn paper mill town next to the Androscoggin River in the White Mountains is worthy of a vacation resort, but it has few tourists. For decades, it has had little of anything save its mill.

The population crested at 20,000 in 1930 before employment began to shrink in the forests supplying the mill. The erosion continued as a new generation moved southward to find work. Several years ago, the second-largest employer, a rubber footware plant, closed after a bitter strike, its market and 1,200 jobs lost to Far Eastern competition.

Now, as the quadrennial parade of presidential candidates moves through Berlin, there is a distinct revival under way. The boom in the rest of New Hampshire has finally reached the remote reaches of the North Country. If a protest vote surfaces in the 1988 campaign, it isn't likely to be cast in the first primary state.

The sagging porches of the three-family wooden homes along the hilly streets are being repaired and some of the houses painted. New $125,000 condominiums are being built where solid six-unit apartment buildings formerly could not be sold for $30,000. The Berlin City Bank has a 16,000-square-foot addition under construction. New-car dealerships have sprung up along the Berlin-Gorham road.

"I've been here all my life," said John Gallus, a Berlin Realtor. "We've gone from good times to a long down period. Now we're bullish on Berlin. The guy on the street can sell his home if he wants to."

Berlin's unemployment rate is under 3 1/2 percent, and three small manufacturing plants opened in the second half of last year, adding nearly 100 jobs. With those jobs and others, more of the town's younger people are either staying in the area or coming home. Local officials say the population, largely of French-Canadian extraction with a leavening of old Yankee and more recent arrivals from outside, is going up again after dropping to about 13,000.

Even in Berlin -- long-depressed, heavily union-oriented and Democratic -- a candidate in Tuesday's presidential primary has a hard time these days selling any tale of economic distress. Gerry Coulombe, president of Local 75 of the United Paperworkers International Union, which represents about 1,300 workers at the big James River Corp. pulp and paper mill, is proud of the way things are going for his members.

James River and the union signed a new three-year contract last summer, and Coulombe said, "We are working together to settle our problems." That's one reason that "the whole city is more prosperous than it was. We could be in the same situation as Jay, or Rumford last year." Those Maine towns were hard hit by UPIU strikes last year, and the one against International Paper Co. in Jay has not been settled and replacement workers have been hired.

Only three years ago, the pulp and paper business was hurting severely from foreign competition encouraged by a soaring U.S. dollar. Things are much better now that the dollar is down, and Coulombe talks about the need to be competitive, not about protectionist trade legislation, a major element in the campaign of the winner of the Iowa Democratic caucuses, Missouri Rep. Richard Gephardt.

"We had to give up some concessions, but not many," said Coulombe of the contract. "The bottom dollar is profit. There are competitors out there making paper and we have to be competitive."

If part of Berlin's current happier economic time is stability at its largest employer, most of the remainder can be traced to boom times in the rest of the state, indeed, in most of the rest of New England.

Elsewhere in New Hampshire, the economic revival arrived years ago. For the past two years, New Hampshire has had the lowest monthly unemployment rate of any state in the nation. There the problems have become those of clogged roads, the lack of affordable housing, schools bursting at the seams and shortages of labor.

Berlin's unemployment rate, low as it is, is the highest of any labor market in the state. So is the 4 1/2 percent rate of surrounding Coos County, which encompasses all of the northern part of New Hampshire. Manchester, the state's largest city, has less than 2 percent of its work force seeking jobs, while the rates of Keene and Claremont, in the southwest, are under 1 1/2 percent.

The entire state has a population of less than 1.1 million, so it is not an economic giant. But its rapid economic growth has been phenomenal. Between 1981 and 1986, its personal income rose more than 50 percent, the fastest of any state. Two years ago, it had the eighth-highest per capita income of any state, and last year it may have bumped New York from seventh.

Since the beginning of this decade, nonfarm employment in New Hampshire has soared more than 30 percent, compared with about 17 percent for all of New England and about 13 percent for the entire nation. Economic growth in the state has been so strong that it simply cannot continue at such a torrid pace. There are no longer enough unemployed workers, nor vacant houses or apartments to house those moving in.

The impetus for rapid growth came initially from Massachusetts next door, where booming high-tech industries and a big expansion of employment in trade and services had employers looking north for untapped pools of workers. Defense spending played a part as well.

The region's general prosperity also gave more and more people the wherewithal to spend millions of dollars as tourists visiting the state's mountains and lakes and seashore. Meanwhile, all the new workers needed houses, the companies needed new plants, stores and offices and many of the tourists decided to buy or build vacation homes, so construction boomed.

Giant shopping malls sprang up near state lines to lure shoppers to buy and avoid sales taxes, since this state has none. Contrary to a common myth, there is an income tax, but it is levied only on income such as interest and dividends that exceed a fairly high threshold level.

Dennis Delay, an economist at Public Service of New Hampshire -- the state's largest electric utility, which filed recently for bankruptcy because of the costs associated with its investment in the Seabrook nuclear plant -- tracks the New Hampshire economy closely.

"The recent growth news has been spectacular, but state leaders are worried about the negative aspects of growth," Delay wrote not long ago. "Housing and labor shortages, strains on municipal services and resultant pressure to increase tax rates have all been cited as real problems that have to be 'solved' by someone. Although everyone will agree that growth is good, uncontrolled growth is not. New Hampshire's growth has happened too quickly ... "

The problems, endemic in the southern part of the state and now reaching the North Country around here as well, have sparked an unusual debate in an essentially conservative state that prides itself on minimal government and low taxes. Republican Gov. John Sununu has made it clear that municipal and county governments are on their own; the state has no plans to provide new aid to help them cope. But there are concerns that local governments may not be able to handle all the bills for new schools, town roads and the like.

Indeed, the development pressures are forcing three of the towns around Berlin -- Gorham, Milan and Randolph -- to consider what had always been an anathema of government intrusion: zoning. With many residents frankly scared by what is happening further south, each will have their first zoning ordinances before their town meetings next month for approval.

"The towns are caught in the middle," said Realtor Gallus. "Is growth good or bad? They're frightened by the negative implications of growth. The state government requires you to do a lot of things but you have to find the money. That's one reason you find moratoriums on growth in the southern part of the state."

Gallus isn't sure whether this new questioning about the virtues of untrammeled growth has any implications for the primary. He agreed that different questions are being asked, but added, "Everybody is pretty happy with the status quo. Reagan has done a good job." One economic issue all the candidates do talk about here, perhaps of necessity, is the federal budget deficit. Gary Hart brought it up at a labor rally where Local 75 was one of the hosts. So did Vice President George Bush in an appearance at the Town and Country Motel in nearby Shelburne.

Typically, North Country residents don't like the notion of a deficit, or many kinds of government spending. One dyed-in-the-wool conservative who makes his living cutting timber angrily watched Bush's 23-car caravan head west after his visit. "What I want to know is why we are shelling out millions of dollars in matching funds for caravans like that," he snorted.

But caught up in their own suddenly more prosperous lives, most of the residents have little to say about the primary or the candidates. Francis Deasy, president of the Berlin City Bank, observed, "We have seen nearly every one of the major players. ... I think the importance of New Hampshire is more related to the individual who is running than to the individual who is voting."

Deasy himself sounds a note of pride. Two years ago, 100 years after it was founded, his bank finally reached the $100 million mark in assets. Since then it has added $60 million more and is expanding its headquarters and building a new branch in Gorham next door. He sees evidence of the area's rising prosperity in higher balances in the average checking account and more demand for other financial services. "We just see throughout the economy things that would not occur in a depressed period.

"Berlin really kind of looked like a mill town, and people seemed to accept that. Now people are painting their houses or putting up new buildings. ... Entire blocks are being refurbished."

On the northern edge of Berlin, in a small municipal industrial park, Norman Metivier is managing one of those three new plants opened last year. In a sense, his own experiences mirror the town's economic history.

Metivier was born here. As a young man he won a General Motors automobile design competition and ended up working for the company in Michigan. Later, he returned to Berlin to become chief industrial engineer for Granite State Rubber Co., the Converse shoe plant that later closed. Long before it did, he moved on to help start operations in Puerto Rico and the Far East as the company searched for lower-cost production sites. He was working in Massachusetts when he learned that the Rochester Shoe Tree Co., which had other plants further south in New Hampshire, planned to expand here.

Metivier, whose love for the area permeates his conversation, wanted to return and seized an opportunity to do so. Now he has 37 employees at work making shoe trees for Brooks Brothers out of eastern aromatic cedar trucked in from the south, and a new item, small fragrant blocks of cedar sold by Bloomingdale's, L.L. Bean and others to ward off moths or to make a room, closet or car smell better.

Holding a fat file of applications of people he would like to be able to hire, Metivier said, "There are a lot of young folks out there who want jobs." The file makes it clear times are better in Berlin but far from great.

About one-fourth of the applicants don't have jobs. Another 35 percent to 40 percent have relatively low-paying service or retail jobs. Others have jobs that require commuting 40 or 50 miles to the south.

"There are still plenty of qualified people to hire. In this valley, you can find, have made or make do with just about everything you need. We did with this plant. All the skills you need are here," he said.

Jeffrey Taylor, director of the Berlin industrial development office, who helped persuade Rochester Shoe Tree to expand here along with companies making small transformers and scented air fresheners for cars, naturally agrees with Metivier's assessment of both skills and availability. What Berlin also has to offer are inexpensive land and relative lower wages.

"Our target market is the southern part of New Hampshire," he explained. In a mailing that will go out soon to about 250 businesses there, Berlin will sell the virtues of the North Country for, say, a satellite plant or a portion of current operations. Industrial land with good road access is there for $8,000 an acre and experienced workers can be hired for $5 an hour, both less than further south.

As long as the boom lasts down there -- and economist Delay said it shows signs only of slowing to a more acceptable pace, not ending -- Taylor said he expects there will be more takers of what Berlin has to offer.

In many ways, New Hampshire is in the middle of the sort of economic good times all the presidential candidates would like to persuade voters they would deliver once they were in office. But in a very real sense the good economic times have already arrived; they have even begun to reach this long-depressed old mill town in its beautiful mountain setting. That appears more important here than any of the economic platforms offered by any of the candidates.