Divergence - is it Geography?

Centro Studi Luca d'Agliano Working Paper No. 158

45 Pages Posted: 16 Jan 2002

See all articles by Dieter M. Urban

Dieter M. Urban

Johannes Gutenberg University of Mainz - Institute for International Economic Theory; CESifo (Center for Economic Studies and Ifo Institute)

Thomas Straubhaar

University of the German Federal Armed Forces - Helmut Schmidt Universität; Centre for Economic Policy Research (CEPR)

Marc Suhrcke

Hamburg Institute of International Economics (HWWI)

Date Written: November 2001

Abstract

This paper tests directly a geography and growth model using regional data for Europe, the US, and Japan during different 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 find 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 official 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.

Keywords: Threshold estimation, Economic geography, Regional income convergence, Poverty trap, Regime shifts, Bootstrap

JEL Classification: O41, R11, F12

Suggested Citation

Urban, Dieter M. and Straubhaar, Thomas and Suhrcke, Marc, Divergence - is it Geography? (November 2001). Centro Studi Luca d'Agliano Working Paper No. 158, Available at SSRN: https://ssrn.com/abstract=296947 or http://dx.doi.org/10.2139/ssrn.296947

Dieter M. Urban (Contact Author)

Johannes Gutenberg University of Mainz - Institute for International Economic Theory ( email )

D 55099 Mainz
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Thomas Straubhaar

University of the German Federal Armed Forces - Helmut Schmidt Universität ( email )

Holstenhofweg 85
Institute for Economic Policy Research ECOPOL
Hamburg 22039
Germany
+49 40 6541 2850 (Phone)
+49 40 6541 2850 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marc Suhrcke

Hamburg Institute of International Economics (HWWI) ( email )

Heimhuder Strasse 71
20347 Hamburg, DE Hamburg 20148
Germany

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