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A labor market based theory of regional economic development

Author

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  • Vijay K. Mathur

    (Department of Economics, Cleveland State University, Cleveland, OH 44115, USA)

  • Frank M. Song

    (Department of Economics, Cleveland State University, Cleveland, OH 44115, USA)

Abstract

The Borts and Stein (1964) theory of regional economic growth and development has been widely accepted and discussed in regional economic development literature. Given their assumption that labor demand conditions are invariant between regions and that the labor demand is highly wage elastic, they conclude that regional growth is primarily supply driven and differences in growth among regions arise due to differences in the growth of labor supply assuming that wage elasticity of labor supply is the same across regions. Muth (1968, 1971) claims to have verified the Borts and Steins (BS) conclusion. We propose a regional labor market based model of economic development similar to BS with certain modifications in assumptions and show that the Borts-Stein-Muth (BSM) conclusion is based upon a narrow view of labor demand and supply elasticities. Our theory demonstrates that regional development is mainly labor demand driven once we adopt a broader view of elasticities. The broader view incorporates the direct effect of wages on labor supply and labor demand as well as the indirect effects of wages through changes in inmigration and firms' formations in a region.

Suggested Citation

  • Vijay K. Mathur & Frank M. Song, 2000. "A labor market based theory of regional economic development," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 34(1), pages 131-145.
    • Handle: RePEc:spr:anresc:v:34:y:2000:i:1:p:131-145
    Note: Received: March 1998/Accepted: August 1998
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    Cited by:

    1. Perry Burnett & Harvey Cutler & Stephen Davies, 2012. "Understanding The Unique Impacts Of Economic Growth Variables," Journal of Regional Science, Wiley Blackwell, vol. 52(3), pages 451-468, August.
    2. Harvey Cutler & Stephen Davies, 2007. "The Impact Of Specific‐Sector Changes In Employment On Economic Growth, Labor Market Performance And Migration," Journal of Regional Science, Wiley Blackwell, vol. 47(5), pages 935-963, December.

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