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| A model of regional economic development with increasing returns |
| QIAN Edward Y., YAO Yao-jun, CHEN Gary |
| Center for Research of Private Economy, Zhejiang University, Hangzhou 310027, China; College of Finance, Zhejiang Gongshang University, Hangzhou 310018, China; Department of Management Science, University of Waterloo, Waterloo ON N2L 3G1, Canada |
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Abstract This paper develops mathematically and empirically tractable regional and interregional model of economic development with increasing returns to scale (IRS) under the neoclassical assumptions. A one-sector, two-region model in which one region exhibits IRS is presented and the whole nation presents constant returns to scale. The development of the local IRS economy is shown to be constrained to a “moving equilibrium” path. The preliminary empirical results are sufficiently supportive of the argument to encourage further research along the lines of the model. In particular, the neoclassical model does not predict negative coefficients on the real rental value of capital in regressions explaining population or employment relative to that in the nation.
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Received: 03 April 2006
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