Regional income convergence, skilled migration and productivity response: Explaining relative stagnation in the periphery
Most country growth experiences imply urbanization with labor migration from poor to rich regions and relative stagnation in the periphery. We study mechanisms holding back regional income convergence emphasizing the importance of productivity. Recent research has addressed the effects of labor mobility for income convergence in the neoclassical growth model, but finds that migration has limited effect on the convergence process. We build skilled labor migration into a multi-regional neoclassical growth model and assume that skilled labor affects productivity. The formulation takes advantage of open economy growth models where human capital influences innovation and technology adoption. Skilled labor outmigration from periphery regions reduces the capacity to generate productivity growth. Calibration of the regional growth model shows that skilled outmigration has quantitative importance for the growth performance of the periphery with realistic parameters. The analysis of the consequences of capital shock reproducing backwardness shows how migration equilibrium can be reestablished only after prolonged relative stagnation.
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