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A perfect foresight model of regional development and skill specialization

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  • Desmet, Klaus

Abstract

A perfect foresight model of a two-region two-sector economy with a continuum of overlapping agents is developed, where there are positive externalities in the acquisition of manufacturing skills. These externalities cause specialization, and over time the economy gets divided into a rich manufacturing region and a poor agricultural region. The introduction of a new manufacturing technology either reinforces or reverses this development pattern. Wealth differences are reinforced if, in spite of higher wages, the new technology locates in the advanced region, attracted by skills similar to the needs of the new industry. Otherwise the new technology locates where wages are lower, in which case the lagging region overtakes the leading one. History alone determines the outcome in this economy; there is no role for self-fulfilling expectations.

Suggested Citation

  • Desmet, Klaus, 1999. "A perfect foresight model of regional development and skill specialization," UC3M Working papers. Economics 6129, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:6129
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    1. Amitrajeet A. Batabyal & Peter Nijkamp, 2019. "The magnification of a lagging region’s initial economic disadvantages on the balanced growth path," Asia-Pacific Journal of Regional Science, Springer, vol. 3(3), pages 719-730, October.
    2. Takeda, Kohei, 2023. "The Geography of Structural Transformation: Effects on Inequality and Mobility," OSF Preprints 8nfx5, Center for Open Science.
    3. Marcel Fafchamps & Forhad Shilpi, 2003. "The spatial division of labour in Nepal," Journal of Development Studies, Taylor & Francis Journals, vol. 39(6), pages 23-66.
    4. Picard, Pierre M. & Toulemonde, Eric, 2004. "Endogenous qualifications and firms' agglomeration," Journal of Urban Economics, Elsevier, vol. 55(3), pages 458-477, May.
    5. Karlsson, Charlie & Johansson, Börje & Stough, Roger, 2008. "Entrepreneurship and Innovation in Functional Regions," Working Paper Series in Economics and Institutions of Innovation 144, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    6. Dieci, Roberto & Mignot, Sarah & Schmitt, Noemi & Westerhoff, Frank H., 2022. "Production delays, supply distortions and endogenous price dynamics," BERG Working Paper Series 182, Bamberg University, Bamberg Economic Research Group.
    7. Takeda, Kohei, 2022. "The geography of structural transformation: effects on inequality and mobility," LSE Research Online Documents on Economics 118050, London School of Economics and Political Science, LSE Library.
    8. Souleymane COULIBALY, 2006. "Persistent Uneven Spread of Economic Activities within Developing RIAs," Cahiers de Recherches Economiques du Département d'économie 06.01, Université de Lausanne, Faculté des HEC, Département d’économie.
    9. Kohei Takeda, 2022. "The geography of structural transformation: Effects on inequality and mobility," CEP Discussion Papers dp1893, Centre for Economic Performance, LSE.
    10. Charlie Karlsson & Börje Johansson & Roger R. Stough, 2010. "Introduction," Chapters, in: Charlie Karlsson & Börje Johansson & Roger R. Stough (ed.), Entrepreneurship and Regional Development, chapter 1, Edward Elgar Publishing.

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    Keywords

    Uneven development;

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