Regional Disparities and economic development

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

Gaps in terms of real GNP per capita Gaps in terms of real GNP per capita Gaps in terms of real GNP per capita Gaps in terms of real GNP per capita Gaps in terms of real GNP per capita Gaps in terms of real GNP per capita Gaps in terms of real GNP per capita Gaps in terms of real GNP per capita
Year GNP per capita in 1960 US dollars and prices GNP per capita in 1960 US dollars and prices GNP per capita in 1960 US dollars and prices GNP per capita in 1960 US dollars and prices Gaps between developed countries and Third World Gaps between developed countries and Third World Gaps between developed countries and Third World
  Developed countries Developed countries Third World Third World Gaps between developed countries and Third World Gaps between developed countries and Third World Gaps between developed countries and Third World
  Total Most Developed Total Less developed      
  A B C D A/C B/C B/D
1750 182 230 188 130 1 1.2 1.8
1800 198 240 188 130 1.1 1.3 1.8
1830 237 360 183 130 1.3 2 2.8
1860 324 580 174 130 1.9 3.3 4.5
1913 662 1350 192 130 3.4 7 10.4
1950 1054 2420 203 135 5.2 11.9 17.9
1960 1453 2800 250 140 5.8 11.2 20
1970 2229 3600 308 140 7.2 11.7 25.7
1977(a) 2737 4220 355 145 7.7 11.9 29.1
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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.
Coefficient of variation of per capita Gross National Product of developed countries() Coefficient of variation of per capita Gross National Product of developed countries() Coefficient of variation of per capita Gross National Product of developed countries()
Year Twenty-five countries(a) Thirty countries(b)
1830 18.2  
1860 34.7  
1913 46.8  
1929 47.5  
1938 41  
1950 56 56.1
1960 45.7 44.5
1970 34.9 32.3
1977 31.2 29.8
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Regional Disparities International Historical
Trends

• Aside 1 Coefficient of Variation
• unweighted CV
• where s 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).

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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
Real GNP per capita of Third World regions (in 1960 US dollars and prices) Real GNP per capita of Third World regions (in 1960 US dollars and prices) Real GNP per capita of Third World regions (in 1960 US dollars and prices) Real GNP per capita of Third World regions (in 1960 US dollars and prices) Real GNP per capita of Third World regions (in 1960 US dollars and prices) Real GNP per capita of Third World regions (in 1960 US dollars and prices) Real GNP per capita of Third World regions (in 1960 US dollars and prices)
Year Market Economy Countries Market Economy Countries Market Economy Countries      
Year Africa America Asia Total China Total Third world
1800 130 245 180 171 210 188
1860 130 260 164 164 195 177
1913 142 357 182 195 188 192
1938 158 400 187 211 187 202
1950 183 467 178 222 166 203
1960 220 520 210 261 230 250
1970 268 610 246 309 306 308
1977(a) 283 723 288 359 346 355
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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.

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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.

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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 convergence due to
• Labour migration wage disparities decline,
  reverse migration
• Capital Migration, Central Government Policy

Empirical evidences for the arguments put forward - Cross sectional evidence period 1949 to 1961 International Cross-Section Empirical evidences for the arguments put forward - Cross sectional evidence period 1949 to 1961 International Cross-Section Empirical evidences for the arguments put forward - Cross sectional evidence period 1949 to 1961 International Cross-Section Empirical evidences for the arguments put forward - Cross sectional evidence period 1949 to 1961 International Cross-Section
Country and Kuznets group of classification Years covered Vw Vuw
Australia 1949/50-1959/60 0.058 0.078
New Zealand 1955 0.063 0.082
Canada 1950-61 0.192 0.259
United Kingdom 1959/60 0.141 0.156
United States 1950-61 0.182 0.189
Sweden 1950, '55, '61 0.2 0.168
Group I Average   0.139 0.155
Finland 1950, '54, '58 0.331 0.276
France 1954, '55/56, '58 0.283 0.215
West Germany 1950-55, '60 0.205 0.205
Netherlands 1950, '55, '58 0.131 0.128
Norway 1952, '57-'60 0.309 0.253
Group II Average   0.252 0.215
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Regional Disparities International Historical
Trends
Country and Kuznets group of classification Years covered Vw Vuw
Ireland 1960 0.268 0.271
Chile 1958 0.327 0.44
Austria 1957 0.225 0.201
Puerto Rico 1960 0.52 0.378
Group III Average   0.335 0.323
Brazil 1950-59 0.7 0.654
Italy 1951, '55, '60 0.36 0.367
Spain 1955, '57 0.415 0.356
Colombia 1953 0.541 0.561
Greece 1954 0.302 0.295
Group IV Average   0.464 0.447
Yugoslavia 1956, '59, '60 0.34 0.444
Japan 1951-59 0.244 0.222
Group V Average   0.292 0.333
Philippines 1957 0.556 0.627
Group VI Average   0.556 0.627
India 1950/51,1955/56 0.275 0.58
Group VII Average   0.275 0.58
Total Average   0.299 0.309
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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

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Regional Disparities International Historical
Trends

• Time Series Evidences

Secular Changes in Vw During The postwar Period Secular Changes in Vw During The postwar Period Secular Changes in Vw During The postwar Period
Income Class Vw rising Vw stable Vw falling
I   Australia Canada
    United Kingdom United States
      Sweden
II   France Finland
      West Germany
      Netherlands
      Norway
III      
IV   Italy Spain
      Brazil
V Japan    
  Yugoslavia    
VI      
VII India    
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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.

Country illustrations United States Country illustrations United States Country illustrations United States Norway Norway
Year Vw (by region) Vw (by state) Year Vw
1840 0.231 0.279 1939 0.424
1860     1947 0.253
1880 0.321 0.355 1952 0.238
1900 0.299 0.322 1957 0.233
1920 0.291 0.331 1958 0.221
1940 0.263 0.331 1959 0.209
1960 0.176 0.195 1960 0.186
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Regional Disparities International Historical
Trends
United Kingdom United Kingdom United Kingdom Year Vw (Taxable income per family) Vw (Personal income per capita)
Year Vw 1864   0.26
1937 0.116 1938 0.658  
1949/50 0.074 1946 0.436  
1954/55 0.064 1951   0.289
1959/60 0.071 1954   0.245
Brazil 1955/56   0.305
Year Vw 1958   0.299
1939 0.502 Italy
1947 0.693 Year Vw
1948 0.689 1928 0.313
1949 0.713 1938 0.345
1950 0.732 1951 0.363
1951 0.725 1952 0.384
1952 0.781 1953 0.323
1953 0.703 1954 0.331
1954 0.711 1955 0.346
1955 0.692 1956 0.348
1956 0.69 1957 0.344
1957 0.665 1958 0.348
1958 0.635 1959 0.356
1959 0.663 1960 0.372

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