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Regional growth under a monetary perspective: a theoretical model with empirical application to the Brazilian case

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  • Teófilo de Paula
  • Fábio Gama
  • Marco Crocco

Abstract

This study aims to establish a link between the regional growth rate and the Keynesian concept of Liquidity Preference from a model of Circular Cumulative Causation. Particularly, it replaces Verdoorn's Law by a mutual causal relationship between credit and regional growth rate. The model is represented by a first-order difference equation dynamic system. The analytical solution suggests that regional changes in Liquidity Preference lead to a Center/Periphery pattern of growth. An empirical application is performed for the Brazilian case, using banking variables at state level in a GMM estimation for Dynamic Panel Data. The results corroborate the hypothesis of persistent different growth rates between the more and the less-developed Brazilian regions.

Suggested Citation

  • Teófilo de Paula & Fábio Gama & Marco Crocco, 2020. "Regional growth under a monetary perspective: a theoretical model with empirical application to the Brazilian case," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(4), pages 657-673, October.
    • Handle: RePEc:mes:postke:v:43:y:2020:i:4:p:657-673
    DOI: 10.1080/01603477.2020.1713005
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