Regional Inequality: An Analysis under an Extended Core-Peripheral Model

Desmet, Gumpert, and Ortίn have analyzed regional development using the Ricardian model, Heckscher-Ohlin theorem or the core peripheral model. However, how the individual assumptions behave with each other (capital transfers to the number of companies or utility values) or in combination (combined wages) has so far been completely ignored. The paper shows a new internal model of rational underdevelopment. Several factors such as labor and capital after Heckscher-Ohlin; and combination wages, substitution elasticity, marginal costs, fixed costs, variable costs, transportation costs, distribution of companies, and company volumes after core peripheral model are considered. The advanced region continues to develop with the ‘extended’ core peripheral model. Without the return transfer, the highest increase in utility would be recorded in the advanced region, because the two factors as well as the ‘extended’ core peripheral model (cost optimization measures) increase the utility. From the findings of the Heckscher-Ohlin theorem, it is known that capital transfers actually help the underdeveloped region in its development and reduce inequality between the two regions. Thus the advanced and underdeveloped region has a model-theoretical incentive for the ’extended’ core peripheral model. The disadvantages of both initial models are overcome and added value is created for both regions.