Divergence - Is It Geography?

Abstract

This paper tests directly a geography and growth model using regional data for Europe, the US, and Japan during di®erent time periods. We set up a standard geography and growth model with a poverty trap and derive a log-linearized growth equation that corresponds directly to a threshold regression technique in econometrics. In particular, we test whether regions with high population density (centers) grow faster and have a permanently higher per capita income than regions with low population density (peripheries). We¯nd geography driven divergence for US states and European regions after 1980. Population density is superior in explaining divergence to initial income which the most important o±cial EU eligibility criterium for regional aid is built on. Divergence is stronger on smaller regional units (NUTS3) than on larger ones (NUTS2). Thus, the wavelength of agglomeration forces seems to be rather small in Europe. Human capital and R&D are transmission channels of divergence processes. Human capital based poverty trap models are an alternative explanation for regional poverty traps.JEL Classi¯cation: O41, R11, F12 Keywords: threshold estimation, economic geography, regional income convergence, poverty trap, regime shifts, bootstrap |||||||||||||||{¤ The authors thank Elvisa Cokoja Torlak for her research assistance. Many helpful comments came from Matthias Ross and workshop participants of a workshop on \Economic geography and regional growth" at HWWA, Hamburg, and the ERWIT conference at LSE.

Are Regional Incomes in the USA Converging? A Non-linear Perspective

“…In this line of research GALOR and WEIL (1996) relate the poverty traps with multiple equilibria where income levels are inversely linked to fertility rates; while DE LA CROIX (2001), using an overlapping generation model, shows that low educational spending leads the economy into a poverty trap. In this line of thought URBAN et al (2001) prove that regions with low human capital stock have a lower steady-state level of income. Finally, HASSLER and RODRIGUEZ (2000) claim that a high growth economy supplies many entrepreneurs thus reinforcing high growth whereas a low growth economy provides few entrepreneurs which supports low growth.…”