Abstract
The Borts and Stein (1964) theory of regional economic growth and development has been widely accepted and discussed in regional economic development literature. Given their assumption that labor demand conditions are invariant between regions and that the labor demand is highly wage elastic, they conclude that regional growth is primarily supply driven and differences in growth among regions arise due to differences in the growth of labor supply assuming that wage elasticity of labor supply is the same across regions. Muth (1968, 1971) claims to have verified the Borts and Steins (BS) conclusion. We propose a regional labor market based model of economic development similar to BS with certain modifications in assumptions and show that the Borts-Stein-Muth (BSM) conclusion is based upon a narrow view of labor demand and supply elasticities. Our theory demonstrates that regional development is mainly labor demand driven once we adopt a broader view of elasticities. The broader view incorporates the direct effect of wages on labor supply and labor demand as well as the indirect effects of wages through changes in inmigration and firms' formations in a region.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
