THЕОRIЕS ОF RЕGIОNАL DIVЕRGЕNСЕ АND СОNVЕRGЕNСЕ
THЕОRIЕS ОF RЕGIОNАL DIVЕRGЕNСЕ АND СОNVЕRGЕNСЕ
Theories of Regional Divergence and Convergence
Several economic theories have been formulated with the primary objective of understanding the dynamics of regional economics. These theories are categorized into two major groups’ namely regional divergence theories and regional convergence theories. One of the most commonly applied theories of regional is the Export Based Theory. This is a fundamental theory that was formulated by Douglass North and Charles Tiebout in the 1950s. The main argument of the theory is that regional economic growth is determined by how the region responds to exogenous world demand. This means that the local, social, and political economy is influenced by the region’s ability to respond to the world demands. The major implication of this type of respond is that the region will be in a better position to export more products than before. This results in increased generation of revenue which plays an elemental role in enhancing economic growth.
Petrakos, Kallioras, & Anagnostou (2011) asserts that it is imperative to note that there are several positive implications for enhancing the export base of a region. One of the significant impacts is that the regional production of goods and services is considerably advanced. This leads to the emergence of new and more reliable industries. These industries serve as job creators to the local people. Therefore, this is one way in which the standards of life of the local community is positively changed. As well, increased exportation of goods and services to meet the world demand encourages diversity in the region. Thus, the export based theory which is part of the regional convergence theories is elemental in shaping the regional economy.
Neoclassical exogenous growth theory is another vital examples of theories categorized as the regional convergence theories. This theory utilizes the supply-side model capacity to determine the capacity of a region to economically grow. In addition to the above, the model uses three crucial factors to determine the economic growth of a specified region. One of the major factors is the progress that the region has regarding technology. This is mainly because enhanced technology plays a crucial role in enhancing the performance of companies. As well, technology is essential in the process of implementing other development activities (Petrakos, Kallioras, & Anagnostou, 2011). Secondly, the theory utilizes the region’s population growth rate. As the rate of population growth enhances, people who play an elemental role in changing the economy increases. Therefore, the region is at the high stake of realizing economic performance. Finally, the theory explores how people save in the give region. Saving primarily is meant for investment and the higher the number of people who save the higher the chances of the society to develop economically.
The theories of convergence are mainly based on neoclassical growth models. The models of convergence are mostly applicable in situations where developing countries put in place mechanisms with the primary objective of catching up with the per capita income of the developed countries. Therefore, the theories of convergence focus on reducing economic disparities that exist between nations. Globalization is one of the major factors that has been at the forefront in contributing to enhanced use of convergence theories. As global trade increases due to factors such as improved technology, the demand for unskilled labor in the developing countries increases. This is mainly because the goods that they produce gets more customers in the global market (Rey & Janikas, 2005).
As a result, the demand for the skilled labor substantially decreases. This means that the situation will favor the skilled employees and they will end up getting wage boosts. On the contrary, the services of the skilled employees will be in low demand and majority of them will not have the opportunity to earn income. The situation creates a critical conflict and inequality between the skilled and the unskilled labor. Hence, it is clear that globalization has led to increased inequality not only between the developed and developing countries but also between skilled and unskilled labor. When such instances occur, the economy considerably suffers leading to chaos and related challenges. Thus, this is a clear indication that regarding globalization, the application of convergence theories is applicable as compared to the use of divergence theories.
Wahiba (2015) notes that in the application of convergence theories, three crucial aspects are vital. These factors are the mobility, goods, and technology. In the case of capital mobility, it is precise that developing countries have reduced capital intensity due to the existence of more unskilled labor. On the other hand, developed countries have more skilled labor leading to enhance productivity in the majority of their organizations. This means that the workforce leads to enhanced economic growth in the developed regions while the developing regions trail.
Both the regional convergence and divergence theories focus on one issue that is the implication of economic growth. The main issue that the theories want to explain is what happens to the regional income when economically grows. In the case of convergence theories, the proponents view that developing countries will tend to implement strategies that will see them cat up with the economies of the developed countries. On the contrary, the divergence theories focus on exploring the possibility of the developing countries to lag behind during such struggles.
According to Artelaris, Kallioras & Petrakos (2010), exploring the similarity between the divergence and convergence theories can be successfully achieved through the discussion of the relationship that exists between these theories. Globalization is a crucial factor that has contributed to economic inequality especially between developed and developing countries. Globalization is considerably intertwined with technology. Use of technology to reach the global markets has significantly favored the high skilled people. This means that those who have no skills to be able to drive economy have been rendered less useful. As such, it is imperative to note that there are several implications of the economic inequality that is caused by globalization. The majority of people living in developing countries live in abject poverty. This is mainly because they cannot get the opportunity to get employment. Therefore, as globalization favors the developed countries such as US and China, the developing countries are substantially affected. The inequality makes it difficult to apply the convergence theories since the rich countries continue getting richer as the developing countries trail (Wahiba, 2015).
In conclusion, it is precise that convergence theories are more influential as compared to divergence theories. Factors such as globalization have led to increased economic disparities between regions. For instance, developed countries have advanced economically while the developing countries are trailing. Convergence theories provide such countries effective strategies of catching up. On the other hand, divergence theories tend to advocate for the widening of the economic gap between the developed regions and the developing countries.
Artelaris, P., Kallioras, D., & Petrakos, G. (2010). Regional inequalities and convergence clubs in the European Union new member-states. Eastern Journal of European Studies, 1(1), 113-133.
Petrakos, G., Kallioras, D., & Anagnostou, A. (2011). Regional convergence and growth in Europe: understanding patterns and determinants. European Urban and Regional Studies, 18(4), 375-391.
Rey, S. J., & Janikas, M. V. (2005). Regional convergence, inequality, and space. Journal of Economic Geography, 5(2), 155-176.
Wahiba, N. F. (2015). Convergence and Divergence among Countries. Asian Economic and Financial Review, 5(3), 510.