ANALYSIS OF REGIONAL GROWTH: A STUDY OF EFFICIENCY/EQUALITY RELATIONS

The research is concerned with the process of regional growth. The purpose is two-fold: (i) to analyze the relations between national aggregate efficiency and interregional income equality in the regional policy decision-making process; and (ii) to explain the historic change in the levels of interregional income inequality in the United States. The study gives particular attention to two different political-economic systems: a planned economy and a free market system. The analysis of regional growth in a planned economy shows the relations between two regional policy goals (i.e., efficiency and equality) through both static and dynamic analyses. The important policy variable adopted here is the regional allocation of investment. This study departs from the existing literature by dropping faulty assumptions from neoclassical regional economic growth theory such as: (i) constant returns to scale; (ii) identical production functions; and (iii) a two-region economy. The static analysis presents various relations between efficiency and equality such as trade-off, non-trade-off and mixed-relations. The dynamic analysis concludes that the two goals conflict in most cases, even though there might be some fluctuation on the short-term planning horizon. The analysis of regional growth in a free market system deals with the following question: Why do regional income inequalities decrease (or increase) as the economy develops? The study shows several interesting results. First, regional income inequalities in the U.S. have been decreasing over time except for the short-time effect of the Great Depression. This finding is quite different from Myrdal's expectation and Williamson's inverted-U hypothesis. Second, neoclassical growth theory as a theoretical rationale for interregional income convergence has a limited predictive accuracy. Both empirical and theoretical analyses indicate that interregional factor flows neither ensure full convergence nor full divergence. Finally, it has been found that the convergence toward regional equality is caused by the long-term geographic dispersion of factors such as wage income, property income, transfer payments, the urbanization rate, the employment structure and the labor participation rate. It is concluded that the convergence results from intraregional, rather than interregional, allocation of resources.