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Economic Integration and Regional Income Inequalities: Competing Dynamics of Regional Wages and Innovative Capabilities
Author(s) -
Bellone Flora,
Maupertuis MarieAntoinette
Publication year - 2003
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00399
Subject(s) - economics , flexibility (engineering) , wage , context (archaeology) , convergence (economics) , labour economics , inequality , wage inequality , macroeconomics , paleontology , mathematical analysis , mathematics , management , biology
Abstract A factor‐price difference scenario has recently been used by Krugman and Venables and by Puga to explain why, in the absence of labor migrations, economic integration should first produce and then dissolve regional income inequalities. The authors question this scenario in a dynamic analysis framework that extends the Baldwin, Martin, and Ottaviano ones to allow for regional wage differences. In this context, wage flexibility is no more a sufficient condition to induce long‐run convergence. Indeed, when regions are equally sized, the innovative capability advantage of the “core” outweighs the wage cost advantage of the “periphery” even for very low transport costs, and regional wage gaps are likely to persist in the long run.