Which way to equality? A continuous time modeling of regional convergence (39)

Theme Track: Methods of Spatial Analysis - Spatial Econometrics in Growth and Land Use Modelling

Authors:
Arbia, Giuseppe ; Paelinck, Jean H. P.

The explanation of the empirical evidences of large differentials in the rate of growth of the per-capita income in various countries (or in various regions within the same country) is surely one of the most challenging questions for the contemporary economist. Due to the important implications in terms of political economy for targeting resources, it may also be regarded as an important social need. As Lucas (1988) says 'once one starts thinking about it, it is difficult to change subject'. In particular in the European Union there has been recently an increasing concern on this subject due to the fact that the narrowing of regional disparities is seen as the major aim of the regional policies. Three tasks have to be faced in this context, namely i) measuring the level of current inequality, ii) measuring the dynamic of inequality especially after the political union of the various countries in order to asses the impact of policies, and iii) forecasting future dynamics. In this paper we contribute to the third of the previous issues by proposing a continuous time framework for modeling the dynamics of growth in a group of regions. We start by proposing a bi-regional model based on the classical Lotka-Volterra predator- prey system of equations. This model was originally proposed by Samuelson (1971) as a candidate for dynamic analysis. We also show the fit of the model to some European regional data using Simultaneous Dynamic Least Squares (SDLS; see Paelinck, 1990) in order to derive estimates of the parameters. Secondly we extend the basic Lotka-Volterra model to the case of more than two regions by introducing neighboring dependence. We discuss the meaning of the parameters and we derive the conditions under which the system of regions moves towards a stable point of convergence. We also show that the popular b-convergence model (Barro and Sala-i-Martin, 1992) can be seen as a special case of our model. Finally the paper will present an empirical application of the model to the per-capita income in the NUTS2 European regions over the years 1985-1999.

References

Alighieri, D (1313) Purgatorio, XV canto, vv 36-39

Barro RJ, Sala-i-Martin X (1992) Convergence, Journal of Political Economy 100(2): 223-51

Lucas R (1988) On the mechanism of economic development Journal of monetary economics, July

Paelinck JHP (1990) Some new estimators in spatial econometrics, in D.A. Griffith (ed.) Spatial Statistics: Past, Present and Future, Syracuse University, Institute of Mathematical Geography, Monograph No 12: 163-181

Samuelson P (1971) Generalized predator-prey oscillations in ecological and economic equilibrium, Proceedings of the national academy of sciences, vol. 68, 980-983

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