Economic Integration, Human Capital and Uneven Endogenous Growth

Economic integration studied in a framework of endogenous growth can be conducive to extreme results in terms of uneven development. Employing one sector production functions, in the presence of externalities due to increasing returns, the region recording the higher returns to physical investment with economic integration attracts the whole of production and labour force, while the other one becomes empty, giving rise to the “national park” effect or “Mezzogiorno solution”. Along these lines, Bertola (1993) shows that a locality even slightly in a backward position at the outset of an experience of economic integration may shrivel down, whereas Burda and Wyplosz (1992) picture the Case where migration wholly depopulates the less developed economy. Consideration of transfer costs for workers can limit such an extreme outcome (Praussello, 1995; 1997 a, b). Setting aside one sector models opens the way for less worrying results. Considering externalities due to human capital endogenous accumulation through learning by doing as in Lucas (1988), a two goods model can be studied, with one high-learning sector as manufacture and one low-learning sector as agriculture. It can be shown that the locality specialised in the less dynamic good can sustain growth rates similar to those of the region specialised in the manufacturing sector, provided the elasticity of substitution between the two goods does not exceed one.