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Structural change and regional convergence: the case of declining transport costs

  • Tombe, Trevor

Regional income inequality within countries is an important contributor to global income inequality. I investigate its relationship with structural change and growth using the historical experience of the United States since 1880. Specifically, I modify an existing multi-sector general equilibrium growth model and highlight two important forces: (1) structural change, which disproportionately benefit poor agricultural regions; and (2) transport cost reductions, which shrinks regional price and wage differences. Consistent with existing research, structural change accounts for the Southern states’ convergence to the Northeast. In contrast, I find reductions in transport costs offset the nominal income gains from structural change for the Midwestern states. The Midwest case is of greater relevance for developing countries, given their high internal transportation costs. These results suggest growth in developing countries may not significantly reduce global income inequality.

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File URL: https://mpra.ub.uni-muenchen.de/34053/1/MPRA_paper_34053.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34053.

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Date of creation: 11 Oct 2011
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Handle: RePEc:pra:mprapa:34053
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  1. Kongsamut, Piyabha & Rebelo, Sérgio & Xie, Danyang, 1997. "Beyond Balanced Growth," CEPR Discussion Papers 1693, C.E.P.R. Discussion Papers.
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  11. Jeremy Greenwood & Gokce Uysal, 2004. "New Goods and the Transition to a New Economy," NBER Working Papers 10793, National Bureau of Economic Research, Inc.
  12. Knick Harley, C., 1980. "Transportation, the world wheat trade, and the Kuznets Cycle, 1850-1913," Explorations in Economic History, Elsevier, vol. 17(3), pages 218-250, July.
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  14. Michael R. Haines, 1989. "A State and Local Consumer Price Index for the United States in 1890," NBER Historical Working Papers 0002, National Bureau of Economic Research, Inc.
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