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How Regions Converge

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  • Caselli, Francesco
  • Coleman II, Wilbur John

Abstract

We present a joint study of the US structural transformation (the decline of agriculture as the dominating sector) and regional convergence (of Southern to Northern average wages). We find that empirically most of the regional convergence is attributable to the structural transformation: the nation-wide convergence of agricultural wages to non-agricultural wages, and the faster rate of transition of the Southern labor force from agricultural to non-agricultural jobs. Similar results describe the Mid-West's catch up to the North-East (but not the relative experience of the West). To explain these observations, we construct a model in which the South (Mid-West) has a comparative advantage in producing unskilled-labor intensive agricultural goods. Thus, it starts with a disproportionate share of the unskilled labor force and lower per capita incomes. Over time, declining education/training costs induce an increasing proportion of the labor force to move out of the (unskilled) agricultural sector and into the (skilled) non-agricultural sector. The decline in the agricultural labor force leads to an increase in relative agricultural wages. Both effects benefit the South (Mid-West) disproportionately since it has more agricultural workers. With the addition of a less-than-unit income-elasticity of demand for farm goods and faster technological progress in farming than outside of farming this model successfully matches the quantitative features of the U.S. structural transformation and regional convergence, as well as several other stylized facts on U.S. economic growth in the last century. The model does not rely on frictions on inter-regional factor mobility, since in our empirical work we find this channel to be less important than the compositional effects the model emphasizes.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2191.

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Date of creation: Jul 1999
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Handle: RePEc:cpr:ceprdp:2191

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Related research

Keywords: Regional Convergence; Skill Acquisition; Structural Transformation;

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Cited by:
  1. R. Paci & F. Pigliaru & M. Pugno, 2001. "Disparities In Economic Growth And Unemployment Across The European Regions: A Sectoral Perspective," Working Paper CRENoS 200103, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. Jeremy Greenwood & Ananth Seshadri & Mehmet Yorukoglu, 2003. "Engines of Liberation," RCER Working Papers 503, University of Rochester - Center for Economic Research (RCER).
  3. Angel de la Fuente, 2002. "Convergence across countries and regions: theory and empirics," UFAE and IAE Working Papers 555.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Douglas Gollin & Steven Parente & Richard Rogerson, 2003. "Structural Transformation and Cross-Country Income Differences," Levine's Working Paper Archive 506439000000000259, David K. Levine.
  5. Marelli, Enrico, 2004. "Evolution of employment structures and regional specialisation in the EU," Economic Systems, Elsevier, vol. 28(1), pages 35-59, March.
  6. Douglas Gollin & Stephen L. Parente & Richard Rogerson, 2004. "Farm Work, Home Work, and International Productivity Differences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(4), pages 827-850, October.
  7. Caselli, Francesco & Coleman II, Wilbur John, 2000. "The World Technology Frontier," CEPR Discussion Papers 2584, C.E.P.R. Discussion Papers.
  8. Nils Björksten, 2000. "Economic Catching up in the Enlarged Euro Area: Implications for the Common Monetary Policy," EUI-RSCAS Working Papers 52, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  9. Robert E. Lucas, Jr., 2001. "Externalities and Cities," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 245-274, April.

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