Abstract
The purpose of this chapter is to discuss the dynamic developments of the model presented in the previous chapter. In Sect. 7.1, the model’s long run solutions are derived, and it is shown that under the given assumptions, all regions converge to the same stable output levels in the long run. An eventual outcome, possibly beyond our lifetimes, may be of limited interest; for this reason, a number of medium run scenarios of regional growth are discussed comprehensively in Sect. 7.2. The model makes clear predictions concerning mutual interdependence, initial output levels and stocks of capital, which are derived formally in Sect. 7.3.
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Notes
- 1.
To give just one example, a convergence speed of 2% annually, regularly found in empirical studies, means that it takes about 35 years to reach half of the target value.
- 2.
For the reasons outlined in Sect. 5.2, there is no data on regional wage shares, but the mechanism is identical if countries within the EU are considered as regions in the sense of this study; the decline of the wage share of Austria as a consequence of FDI outflows to Central and Eastern European countries has recently been explored by Breuss (2007).
- 3.
μ t is always greater than zero, but under specific circumstances it may be smaller than one. In that case, some regions might experience gross investments that are lower than would be the case if they were closed economies, even though their net inflow of FDI is positive.
References
Breuss F (2007) Globalization, EU enlargement and income distribution, WIFO Working Papers 296
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Sardadvar, S. (2011). Evolution of Factors and Output. In: Economic Growth in the Regions of Europe. Contributions to Economics, vol 1. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2637-1_7
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DOI: https://doi.org/10.1007/978-3-7908-2637-1_7
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