Regional Disparities and economic development - neoclassicals (solow)

1. Regional Disparities and economic development - neoclassicals (solow) - unbalanced growth theories(myrdal, Hirschman) - dependancy /core-periphery theories(A.G.Frank)

2. Regional Disparities and economic development– International Historical Trends The relation between regional disparity and economic development Paul Bairoch (1981) (see Bairoch and Maurice Levy-Leboyer – Disparities in Economic Development since the Industrial reviolution-1981) 1.Real GNP per capita differences between the developed and developing countries: Historical trends

3. Regional Disparities – International Historical Trends • In the early 18th century third world economies had a higher Per capita GNP than developed economies • industrial revolution in the early 19th century, drain of wealth from colonies, put the developed economies on a faster growth path than the third world. • The gap is more prominent and widening eversince 2.Disparities Within the Developed Economies.

4. Regional Disparities – International Historical Trends • Aside 1: Coefficient of Variation • unweighted CV where σ is the standard deviation, μ is the mean of the variable x • Weighted CV where P is the population of the region s, n is the average, X is the variable (per capita income).

5. Regional Disparities – International Historical Trends • inverted U shaped pattern, wherein there is initially a rise in Coefficient of variation among the countries, till the mid of the 20th century, thereafter the disparities tend to decline. 3. Disparities among the developing world

6. Regional Disparities – International Historical Trends • Widening gap in Per capita income between the Asian countries and the Latin American economies till the 1950s. • There is convergence among the Asian and African economies • The convergence btw Asian and African economies are due to slowing of Asian economies. • The divergence btw the L. American and other economies is due to hastening of their growth.

7. Regional Disparities – International Historical Trends To summarize... • There is continuous widening disparity between the developed and the developing world • The disparity within the developed world is declining • The disparity within the developing world is widening.

8. Regional Disparities – International Historical Trends • J.Williamson-Process of national development and regional disparity- Jeffrey Williamson , EDCC, (1965 vol 13, pp3-45) • Hypothesized that at initial stages of economic development there would be a tendency for widening of regional disparity in the economy till it reaches a high point; hereafter the regional disparity tend to decline as the economy develops- the inverted U shaped curve hypothesis. The reasons for the initial divergence….. - Labour migration -high cost of migration, traditional inertia to migrate, -selective skilled labour migration - Capital Migration -under developed financial institutions -low rate of returns for capital - Central Government Policy - Interregional Linkages

9. Regional Disparities – International Historical Trends • …and later convergencedue to • Labour migration – wage disparities decline, reverse migration • Capital Migration, Central Government Policy

10. Regional Disparities – International Historical Trends

11. Regional Disparities – International Historical Trends • the severity of disparity varies from region to region. • The severity of disparity is the lowest in the high income groups. • As we move to the middle income groups the severity is the highest • When we move to low income countries the severity of disparity again decreases. • Within each groups there are wide variations in disparity

12. Regional Disparities – International Historical Trends • Time Series Evidences

13. Regional Disparities – International Historical Trends • High income countries in general had a stable or declining severity of regional disparity (group 1 and 2) • Middle income countries showed a variety of trends. Italy had a stable Vw at a high level , Brazil had a declining Vw from its high level of disparity. • The low income group countries had a rising degree of disparity.

14. Regional Disparities – International Historical Trends

15. Regional Disparities – International Historical Trends • Labour participation rates vs productivity (quantity and quality) • - how much of the above observed trend is explained by productivity differentials, and how much of it is due to differences in participation rates. • An index on inequality based on productivity is constructed. The productivity differentials turn out to be much less than the per capita income index weighted by population of he region. This gives us reason to believe that participation rate differences are more important than productivity differences in explaining per capita income differences among regions. This differences in regional participation rates could be due to selective migration of workers. • Sectoral variations in regional disparity • - sectoral classification of productivity differentials shows that regional disparities are higher in the agricultural sector than in the manufacturing sector. This is mainly due to the differences in natural endowments of the region