The Magnification of a Lagging Region's Initial Economic Disadvantages on the Balanced Growth Path

Batabyal, Amitrajeet and Nijkamp, Peter (2019): The Magnification of a Lagging Region's Initial Economic Disadvantages on the Balanced Growth Path.

Abstract

We analyze aspects of long run economic growth in stylized lagging and leading regions. Both regions use physical capital, research and development (R&D), and knowledgeable workers to produce a final consumption good. The lagging region faces two key economic disadvantages. Specifically, the constant fractions of the output of the final consumption good that are saved to enhance the stocks of physical capital and R&D are assumed to be twice as large in the leading region as they are in the lagging region. In this scenario, we perform three tasks. First, we determine the ratio of the balanced growth path (BGP) value of output per knowledgeable worker in the leading region to its value in the lagging region. Second, we ascertain the ratio of the BGP value of R&D per knowledgeable worker in the leading region to its value in the lagging region. Finally, we show the extent to which the lagging region’s initial economic disadvantages are magnified on the BGP and then discuss some policy implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Growth, Lagging Region, Leading Region, Magnification Effect
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O18 - Urban, Rural, Regional, and Transportation Analysis ; Housing ; Infrastructure; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

References

Acemoglu, D. 2009. An Introduction to Modern Economic Growth. Princeton University Press, Princeton, NJ.

Alecke, B., Mitze, T., and Untiedt, G. 2013. Growth effects of regional policy in Germany: Results from a spatially augmented multiplicative interaction model, Annals of Regional Science, 50, 535-554.

Alexiades, S. 2013. Club Convergence: Geography, Externalities, and Technology. Springer, Berlin, Germany.

Batabyal, A.A. 2018. A note on local public good induced spillovers between a leading and a lagging region, Regional Science Inquiry, 10, 11-16.

Batabyal, A.A., and Beladi, H. 2015a. Knowledge goods, ordinary goods, and the effects of trade between leading and lagging regions, Research Policy, 44, 1537-1542.

Batabyal, A.A., and Beladi, H. 2015b. Aspects of creative capital in a regional economy with time variant schooling, Studies in Regional Science, 45, 413-418.

Batabyal, A.A., and Beladi, H. 2015c. Aspects of the accumulation of creative capital in a regional economy, Technological Forecasting and Social Change, 98, 88-92.

Batabyal, A.A., and Nijkamp, P. 2014a. Technology, learning, and long run economic growth in leading and lagging regions, Economic and Political Weekly, 49, 92-96.

Batabyal, A.A., and Nijkamp, P. 2014b. Some properties of the technology gap between leading and lagging regions, Theoretical Economics Letters, 4, 1-6.

Batabyal, A.A., and Nijkamp, P. 2019. Creative capital, information and communication technologies, and economic growth in smart cities, Economics of Innovation and New Technology, 28, 142-155.

Baumol, W.J. 1986. Productivity growth, convergence, and welfare: What the long run data show, American Economic Review, 76, 1072-1085.

Becker, K., Hyland, P., and Soosay, C. 2013. Labour attraction and retention in rural and remote Queensland communities, Australasian Journal of Regional Studies, 19, 342-368.

Boltho, A., Carlin, W., and Scaramozzino, P. 2018. Why East Germany did not become a new mezzogiorno, Journal of Comparative Economics, 46, 308-325.

Brown, A., Fornoni, R., Gardiner, B., Greunz, L., Jestl, S., Rabemiafara, N., Romisch, R., Stenning, J., and Ward, T. 2017. Economic Challenges of Lagging Regions. Publications Office of the European Union, Luxembourg.

Coe, D.T., and Helpman, E. 1995. International R&D spillovers, European Economic Review, 39, 859-887.

Cutrini, E., and Valentini, E. 2017. Regional strategies for dealing with structural change, Regional Science Inquiry, 9, 107-117.

Dawid, H., Harting, P., and Neugart, M. 2014. Economic convergence: Policy implications from a heterogeneous agent model, Journal of Economic Dynamics and Control, 44, 54-80.

Desmet, K. 2000. A perfect foresight model of regional development and skill specialization, Regional Science and Urban Economics, 30, 221-242.

Desmet, K., and Ortin, I.O. 2007. Rational underdevelopment, Scandinavian Journal of Economics, 109, 1-24.

Farole, T., Goga, S., and Ionescu-Heroiu, M. 2018. Rethinking Lagging Regions. World Bank, Washington, DC.

Giannetti, M. 2002. The effects of integration on regional disparities: Convergence, divergence or both? European Economic Review, 46, 539-567.

Hall, B.H., Mairesse, J., and Mohnen, P. 2010. Measuring the returns to R&D, in B.H. Hall and N. Rosenberg, (Eds.), Handbook of the Economics of Innovation, Volume 2, 1033-1082, Elsevier, Amsterdam, The Netherlands.

Inzelt, A., and Szerb, L. 2006. The innovation activity in a stagnating county of Hungary, Acta Oeconomia, 56, 279-299.

Jones, C.I. 1995. R&D based models of economic growth, Journal of Political Economy, 103, 759-784.

Kalirajan, K. 2004. Economic reform and the transmission of growth impulses across Indian states, International Journal of Social Economics, 31, 623-636.

Kochendorfer-Lucius, G., and Pleskovic, B. Eds. 2009. Spatial Disparities and Development Policy. World Bank Publications, Washington, DC.

Lucas, R.E. 1988. On the mechanics of economic development, Journal of Monetary Economics, 22, 3-42.

Mankiw, N.G., Romer, D., and Weil, D.N. 1992. A contribution to the empirics of economic growth, Quarterly Journal of Economics, 107, 407-437.

Mitze, T., Alecke, B., and Reinkowski, J., and Untiedt, G. 2015. Linking collaborative R&D with the research and innovation performance of SMEs in peripheral regions: Do spatial and organizational choices make a difference? Annals of Regional Science, 55, 555-596.

Nocco, A. 2005. The rise and fall of regional inequalities with technological differences and knowledge spillovers, Regional Science and Urban Economics, 35, 542-569.

Oladi, R., and Gilbert, J. 2011. Monopolistic competition and north-south trade, Review of International Economics, 19, 459-474.

Romer, D. 2012. Advanced Macroeconomics, 4th edition. McGraw-Hill Irwin, New York, NY.

Romer, P.M. 1986. Endogenous technological change, Journal of Political Economy, 98, S71-102.

Shanks, S., and Zheng, S. 2006. Econometric Modeling of R&D and Australia’s Productivity. Productivity Commission, Melbourne, Australia.

Ulku, H. 2004. R&D, innovation, and economic growth: An empirical analysis, IMF Working Paper WP/04/185, International Monetary Fund, Washington, DC.

Woo, Y., Kim, E., and Lim, J. 2017. The impact of education and R&D investment on regional economic growth, Sustainability, 9, 1-18.