The North-South divide: Sources of divergence, policies for convergence

Abstract

Building on the labour-augmented K+S model framework, we analyse the Italian North-South divide by means of an agent-based model (ABM) endogenously reproducing the divergence between two artificial macro-regions. The latter are characterised by identical initial conditions in terms of productive and innovation structures, but different labour market organisations. We identify the role played by these different arrangements on the possible divergence across the two regions. We found that divergences in the labour market reverberate into asymmetric productive performance due to negative reinforcing feedback loop dynamics. We then compare alternative mitigation policies by showing that schemes increasing machine renewal and replacement investment are the most effective in fostering convergence.