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Structural change and regional convergence: the case of declining transport costs

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  • Tombe, Trevor

Abstract

Regional income inequality within countries is an important contributor to global income inequality. I investigate its relationship with structural change and growth using the historical experience of the United States since 1880. Specifically, I modify an existing multi-sector general equilibrium growth model and highlight two important forces: (1) structural change, which disproportionately benefit poor agricultural regions; and (2) transport cost reductions, which shrinks regional price and wage differences. Consistent with existing research, structural change accounts for the Southern states’ convergence to the Northeast. In contrast, I find reductions in transport costs offset the nominal income gains from structural change for the Midwestern states. The Midwest case is of greater relevance for developing countries, given their high internal transportation costs. These results suggest growth in developing countries may not significantly reduce global income inequality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34053.

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Date of creation: 11 Oct 2011
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Handle: RePEc:pra:mprapa:34053

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Keywords: Structural change; income convergence; dual-economy;

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  12. Knick Harley, C., 1980. "Transportation, the world wheat trade, and the Kuznets Cycle, 1850-1913," Explorations in Economic History, Elsevier, vol. 17(3), pages 218-250, July.
  13. Heshmati, Almas, 2004. "Regional Income Inequality in Selected Large Countries," IZA Discussion Papers 1307, Institute for the Study of Labor (IZA).
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  15. Paci, Raffaele & Pigliaru, Francesco, 1997. "Structural change and convergence: an Italian regional perspective," Structural Change and Economic Dynamics, Elsevier, vol. 8(3), pages 297-318, August.
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