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

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  • Tombe, Trevor

Abstract

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.

Suggested Citation

  • Tombe, Trevor, 2011. "Structural change and regional convergence: the case of declining transport costs," MPRA Paper 34053, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34053
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    More about this item

    Keywords

    Structural change; income convergence; dual-economy;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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