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Rational underdevelopment: regional economic disparities under the Heckscher-Ohlin Theorem

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  • Marcus Gumpert

Abstract

This paper analyzes how differences in regional development arise through technological variations and changes. Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored migration, elasticities, multidimensional factors and inputs. This study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two regions, with two sectors, in two periods. The regions have different factor and technology endowments. The first region has a technology sector, and the second is a technology laggard. Once a new technology that can potentially benefit both regions is introduced, the technology-endowed region offers financial transfers to the technologically lagging region. This equalizes regional incomes but also reduces the possibility that the laggard will adopt the new technology and decrease its developmental disadvantage. We also discuss the influence of mobile factors, which reduce regional inequality. The results show that rational underdevelopment extends beyond wage subsidies to mobile factors and capital. The analysis has implications for economic policies aimed at reducing inter-regional inequality.

Suggested Citation

  • Marcus Gumpert, 2016. "Rational underdevelopment: regional economic disparities under the Heckscher-Ohlin Theorem," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 89-111, January.
    • Handle: RePEc:taf:irapec:v:30:y:2016:i:1:p:89-111
    DOI: 10.1080/02692171.2015.1074165
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    References listed on IDEAS

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    1. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
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    1. Marcus Gumpert, 2024. "Regional economic disparities under the Solow model," Quality & Quantity: International Journal of Methodology, Springer, vol. 58(2), pages 1017-1037, April.
    2. Zou, Chen & Huang, Yongchun & Hu, Shiliang & Huang, Zhan, 2023. "Government participation in low-carbon technology transfer: An evolutionary game study," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    3. Marcus Gumpert, 2019. "Multidimensional Core-peripheral Model," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 192-208.
    4. Marcus Gumpert, 2019. "Multidimensional Core-peripheral Model," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 192-208.
    5. Marcus Gumpert, 2020. "Regional Inequality: An Analysis under an Extended Core-Peripheral Model," Journal of Industry, Competition and Trade, Springer, vol. 20(1), pages 157-186, March.

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