Suchergebnisse

In integrated national economies, overall gross domestic product and income per capita move in the same direction. Because of this association, observers often assume that the same relation holds at the regional level. The authors argue in this article that long-term adjustments to interregional growth differentials are realized by product and factor mobility, not by prices, with the exception of the price of land and of nontradable local services, such hairdressing. Quantities, not prices or incomes, adjust. Slow-growing regions, therefore, should have real income per capita as high as that of fast-growing ones, even though they grow at a lower rate. Growth differentials are capitalized into the prices of land and local services, the only prices that vary across the economy. Land-price differentials across the country thus provide an immediate and easy-to-observe measure of interregional growth. They bring out here the significance of this analysis for political institutions and policies. Adapted from the source document.