Testing Equilibrium Models of Regional Disparities

The large and persistent regional disparities of most European economies have been explained as a disequilibrium phenomenon: convergence between backward and successful regions is slow because the equilibrating forces are weak. Recently, two models have emerged where regional disparities are seen as an equilibrium phenomenon: the amenity model, which assumes that high unemployment and low wages reflect favourable living conditions, and the matching model, which views high unemployment as the result of labour market congestion in declining regions. The paper derives some key empirical implications of the models and examines whether the regional pattern of migration, unemployment and wages in Norway conforms with these implications. The results are supportive of the matching model but not of the amenity model