AbstractWe propose a two-region two-sector model of uneven development, where technological change benefits either the lagging or the leading region. In this framework inter-regional transfers may lead to persistent underdevelopment; by raising wages without changing productivity, transfers reduce the chance of the backward region adopting a new technology and taking off. Due to uncertainty about which region benefits from technological change, the backward region may rationally choose to remain underdeveloped, while the advanced region continues to pay transfers. The Model provides a rationale for cases, such as Italy's Mezzogiorno, where the same rich region subsidizes the same poor region on a continuous basis.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0114.
Date of creation: 2001
Date of revision:
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- R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
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