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Rational Underdevelopment


  • Klaus Desmet
  • Ignacio Ortuño Ortín


We propose a two-region two-sector model of uneven development, where technological change benefits either the lagging or the leading region. In this framework interregional transfers may lead to persistent underdevelopment; by raising wages, 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. Copyright The editors of the "Scandinavian Journal of Economics" 2007 .

Suggested Citation

  • Klaus Desmet & Ignacio Ortuño Ortín, 2007. "Rational Underdevelopment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(1), pages 1-24, March.
  • Handle: RePEc:bla:scandj:v:109:y:2007:i:1:p:1-24

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    References listed on IDEAS

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    Cited by:

    1. Gilad Aharonovitz, 2011. "Knowledge-based spatial differences in economic activity, job related migration and housing related migration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 46(1), pages 159-188, February.
    2. Batabyal, Amitrajeet & Nijkamp, Peter, 2014. "Some properties of the technology gap between leading and lagging regions," MPRA Paper 71596, University Library of Munich, Germany.
    3. Klaus Desmet & Ignacio Ortuño Ortín, 2007. "Rational Underdevelopment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(1), pages 1-24, March.
    4. Ramon Tremosa-i-Balcells & Joan Costa-i-Font, "undated". "The "relative competitiveness" patterns of Spanish regions after the European Monetary Union (1999-2002)," Studies on the Spanish Economy 169, FEDEA.
    5. Amit Batabyal & Peter Nijkamp, 2014. "Technology, Learning, and Long Run Economic Growth in Leading and Lagging Regions," ERSA conference papers ersa14p893, European Regional Science Association.

    More about this item

    JEL classification:

    • 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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