A leontief model of interregional economic growth

Abstract

Savings are invested in the region offering the best return, thus increasing its stock of capital. Simultaneously labour grows, moving to the region which pays the highest wages. On which path does this system of regions develop? Theoretical analysis shows that the time path depends on Leontief technology, propensity to save and on the growth of labour. In the case of isolated regions a dynamic equilibrium only exists by chance; in the case of integrated regions, however, a stable equilibrium is likely to exist. There is no need for regional policy in this setting, since the market allocates efficiently and distributes equitably.