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Rational Underdevelopment

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Author Info

  • Ignacio Ortuño Ortín

    (Universidad de Alicante)

  • Klaus Desmet

    (Universidad Carlos III de Madrid)

Abstract

We propose a two-region two-sector model of uneven development,where technological change benefits either the lagging or the leading region. Inthis framework inter-regional transfers may lead to persistentunderdevelopment; by raising wages, transfers reduce the chance of thebackward region adopting a new technology and taking o.. Due to uncertaintyabout which region benefits from technological change, the backward regionmay rationally choose to remain underdeveloped, while the advanced regioncontinues to pay transfers. The model provides a rationale for cases, such asItaly’s Mezzogiorno, where the same rich region subsidizes the same poorregion on a continuous basis.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2006-12.

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Length: 30 pages
Date of creation: Jun 2006
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2006-12

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Keywords: inter-regional transfers; regional policy; uneven development.;

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Cited by:
  1. Ignacio Ortuño Ortín & Klaus Desmet, 2006. "Rational Underdevelopment," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2006-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Gilad Aharonovitz, 2011. "Knowledge-based spatial differences in economic activity, job related migration and housing related migration," The Annals of Regional Science, Springer, vol. 46(1), pages 159-188, February.
  3. Ramon Tremosa-i-Balcells & Joan Costa-i-Font, . "The "relative competitiveness" patterns of Spanish regions after the European Monetary Union (1999-2002)," Studies on the Spanish Economy 169, FEDEA.

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