Growth, Convergence, and Social Cohesion in the European Union

By Pardo, Isabel | International Advances in Economic Research, November 2005 | Go to article overview

Growth, Convergence, and Social Cohesion in the European Union


Pardo, Isabel, International Advances in Economic Research


Abstract

The aim of this paper is to analyze the economic and social cohesion in the European Union. There are different factors to explain the convergence process and besides, empirical findings are not conclusive. To the European Union, GDP per head inter-regional differences have decreased for certain periods but it has remained unchanged or even increased for others periods. The second report on the economic and social cohesion indicates that some decades are necessary to eliminate regional differences. These differences in regional GDP are mainly explained by differences in their productive structures, degree of innovate activity, communications structures, which depend on the relative level of transport infrastructures, and manpower qualifications. This analysis allows us to obtain some conclusions to the economic policies and the social cohesion. (JEL O18, R58)

Introduction

Economists have been interested to determine factors that improve growth and convergence among countries and regions. The economic literature offers different arguments. The neoclassical school of thought (convergence theory) considers that the market helps growth for less developed regions, leading to convergence. On the other side, for the divergence theory, growth possibilities are different for each region and the growth process does not necessarily help convergence. Endogenous growth models have become more important since the 1980s. These models consider that convergence is difficult because differences among regions in terms of infrastructures, level of RDT and training human capital.

After the exposition of different theories, the paper analyzes, in the third section, the empirical findings about the convergence and the factors that explain it. According to this analysis, it is possible to have some conclusions of the economic policies and the social cohesion, and these are presented in the fourth section.

Growth and Convergence

Theories of Regional Convergence

Theories of regional convergence rest in neoclassical supposes. In a competitive economy where the prices are flexible, the resources are used fully and there are constant yields of scale. The growth is determined by the growth of the capital and the work. The different growth among regions depends on the growth of the capital and of the work. With neoclassical supposes (perfect competition and production factors mobility) the capital and the work move towards the regions that offer bigger yields. Businessmen invest where profits are greater and workers go to the regions where they are better paid.

Differences between yields factors and their mobility explain the convergence. If regions have high wages, attract labor force, and lose capital, and when regions have low wages, attract capital, and lose labor force, then GDP converge.

Theories of Regional Divergence

To the divergence theories, if growth begins anywhere, the market does not help the convergence but favors the activity concentration. According to Myrdal [1979] growth begins where there are initial advantages and then, the free market benefits to regions with better conditions. Besides the work and the capital movements also increase the differences. Regions that grow attract manpower from lagging regions. People who emigrate are the youngest, enterprising population and more qualified and then favors to the prosperous regions and harms the weakest regions. The capital also keeps the inequalities. The growth favors new investments; however, in lagging behind development regions, there are not growth prospects to promote the investment, and the needs capital stay at low levels.

The idea growth pole [Perroux, 1955] refers to interrelations between the growth centers and their nearer environment. Growth begins in some areas and these places turn into growth poles. The growth is spread across the whole. When growth begins, there is driving industries that encourage new industries.

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