Swedish Regional Income Inequality 1860-2000

• The following are study notes on models of market integration and regional growth, historical evidence, and the rise of cities.

Models of Market Integration and Regional Growth

• Robert J. Barro and Xavier Sala-i-Martin (1991) explore convergence across states and regions.
• J.G. Williamson (1965) examines regional inequality and national development.
• Barro & Sala-i-Martin question whether regions with lower initial incomes grow faster than richer ones, leading to income convergence.
• Williamson questions how regional inequality evolves during national development and aims to identify observable patterns.
• Barro & Sala-i-Martin use empirical analysis focusing on "β-convergence" and "σ-convergence", analyzing cross-sectional and panel data.
• Williamson uses descriptive and comparative analysis of historical and cross-country data to find patterns of regional income inequality correlated with development stages.
• Barro & Sala-i-Martin's analysis supports β-convergence, where poorer areas grow faster, controlling for factors like education and savings, but absolute convergence isn't always seen without structural factors.
• Regional inequality increases initially during industrialization as development concentrates in specific regions but declines as development spreads to lagging regions, forming an inverted-U curve of regional inequality over time according to Williamson.
• Barro & Sala-i-Martin identify investment in human capital as crucial for growth and convergence.
• Williamson underscores industrialization and structural transformation as primary drivers of growth and regional inequality dynamics.

Historical Evidence, Convergence, and the Creation of Factor Markets

• Sweden experienced a steady decline in regional inequality from 1860 to 1980, but disparities re-emerged after 1980 due to the concentration of knowledge-based industries in metropolitan areas.
• Italy followed a classic inverted U-shaped pattern, with inequality rising until the mid-20th century, then partially declining, but convergence stalled after the 1970s, leaving disparities between the North and South.
• Initial conditions in Sweden included moderate regional disparities in 1860 with no extreme economic divide.
• Initial conditions in Italy included a strong North-South divide, with the North ahead in literacy, productivity, and industrial potential.
• Industrialization spread more evenly across Swedish regions, driven by productivity growth and labor shifts.
• Industrialization was concentrated in the North of Italy, while the South remained largely agricultural.
• Sweden had high internal migration supporting convergence.
• Italy experienced large-scale migration from the South to the North and abroad, but this didn't fully close the gap.
• Structural change in Sweden involved labor moving to higher-value sectors, driving convergence.
• Structural Change in Italy saw the North's industrialization deepen regional divides.
• In Sweden, market forces reduced income gaps early on before policy intervention.
• Market forces alone did not lead to convergence in Italy as the South remained economically behind.
• Technological change spread more evenly across Sweden, boosting productivity.
• Technological change was concentrated in the North of Italy, reinforcing regional inequality.
• Sweden had strong institutions and national policies ensuring regional development.
• Italy had weaker institutions and governance failures in the South, slowing economic progress.
• State policies played a major role in Sweden from 1940-1980 in reducing inequalities.
• Government intervention in Sweden promoted labor reallocation and strong institutional support with education policies.
• State intervention in Italy was significant but largely unsuccessful long term.
• Major regional policies in Italy attempted to industrialize the South between the 1950s and 1980s, leading to temporary convergence, but failed to create self-sustaining growth.
• Weak governance, inefficient policy implementation and low social capital in the South contributed to policy failure in Italy.
• Most countries show regional income inequality follows an inverted U-shape, rising with industrialization and later declining.
• Sweden experienced a steady decline in inequality from 1860 to 1980, lower than other European countries.
• Structural change was the main driver of convergence in Sweden, while neoclassical and technological factors were less influential.
• Market expansion and high migration reduced regional income gaps between 1860 and 1940.
• Government policies and institutional arrangements further equalized incomes between 1940 and 1980.
• Regional divergence reappeared as migration slowed and knowledge-based industries concentrated in major cities between 1980 and 2000.
• A study investigates Sweden's declining regional income inequality from 1860 to 2000, contrasting with the inverted U-shaped pattern.
• The study focuses on regions rather than countries to analyze localized economic dynamics, structural change, and migration patterns.
• The research examines structural change, migration, and government policies and the impact of market forces vs. institutional interventions on regional convergence.

The Rise of Cities

• Cities have seen tremendous growth and are growing due to the benefits of proximity.
• Cities are productive due to specialized knowledge and creativity and productive people want live in them.
• Educated cities outperform non-educated cities.
• Skills improve individuals and those around them.
• Long-run success is helped by talent and the possibility of being an entrepreneur.
• Face-to-face interaction is crucial for growth.
• Learning is important face-to-face and one can learn from smart people.
• It is easier to focus and be entrepreneurial when not online.
• Knowledge and skills are becoming more important as drivers of growth.
• Technology makes it easier to share more, more effectively.
• Rapid urbanization today isn't always accompanied by rising fortunes, particularly for the poorest.
• Urbanization without growth is not a new phenomenon.
• The positive relationship between urbanization and growth changed significantly between 1500 and 2010..
• Poor countries are experiencing the most rapid urbanization.
• By 2010, nearly 80% of mega-cities were in developing nations.
• A strong link exists between city size and worker productivity, but this only holds in highly educated cities in the U.S.
• Key question addresses why city size boosts productivity in skilled cities but not in unskilled ones.
• Skilled workers choose bigger cities, which only partly explains the effect.
• Non-knowledge-based and knowledge-based factors drive agglomeration.
• Urban density helps workers learn faster or accelerates innovation, affecting wage growth differently.
• Workers in skilled cities learn faster, but wage growth confirms neither learning nor innovation as the main driver.
• Cities become more important for economic growth if human capital rises, unless replaced by technology.
• Agglomeration effects are stronger in highly skilled cities.

Notes for the "Dugga"

• Neglecting economically lagging regions has fueled political discontent and populism.
• Place specific policies are advocated rather than relying on urban-centered growth.
• Alternative views about urbanization stress cultural factors, mobility policies, etc.
• Declining social capital, economic stagnation, and inequality in left-behind U.S. regions have driven support for populism, particularly Trump.
• Weal local networks and distrust fuel political dissatisfaction in left-behind regions.
• Poorer U.S. regions grow faster than richer ones (β-convergence), conditional on factors like human capital and institutions.
• Some challenge beta-convergence, citing persistent disparities due to agglomeration effects or club convergence
• Regional inequality follows an inverted U-shape during development with industrialization rising and later growth spreading.
• Williamson identifies labor/migration, capital-agglomeration), government investments/central government and interregional linkages as factors that increase regional inequality.
• Barro and Sala-i-Martin argue for β-convergence, while Williamson proposes an inverted U-shape (sigma-convergence).
• The Solow growth model predicts convergence because of diminishing capital returns.
• B-convergence refers to poorer economies or regions growing faster than richer ones, reducing income disparities over time.
• Absolute (unconditional) convergence assumes all regions or economies will eventually converge to the same level of income.
• Conditional convergence argues that regions will only converge if they share similar structural factors.
• Sigma-convergence variation between different regions using the standard deviation of population/mean formula.
• Sweden's regional inequality (1860-2000) was driven by structural change, migration, and government policies
• Italy's regional disparities from 1891 to 2001 were driven by factors like industrialization and regional policies, with the North-South divide widening over time.
• Sweden's regional divide is from population density, and Italy has a divide in living standards (GDP per capita).
• The Solow-Swan growth model predicts convergence of poorer economies.
• Unconditional convergence assumes all regions will eventually converge.
• Conditional convergence states that regions only converge if they share similar conditions.
• σ-convergence is the reduction in income inequality across regions.
• ẞ-convergence is how poorer regions grow faster than richer ones.
• ẞ-convergence measures convergence by analyzing growth rates.
• σ-convergence measures the dispersion of income levels.
• Williamson prefers σ-convergence because it directly measures the reduction in income inequality.
• Sweden and Italy were compared using Williamson's four factors: labor migration, capital agglomeration, government policies, and interregional linkages.
• The Cassa per il Mezzogiorno 1952 was a big government initiative to help the south of Italy close the gap between north and south.
• Sweden had the Rehn-Meinder model, active labor market policy, and structural change on the labor market.
• Peripheral regions in Sweden could no longer compete with lower wages.
• Urban economics suggests a link between city size and worker productivity, but this pattern only holds in the most highly educated cities in the U.S. -Theories of agglomeration include non-knowledge-based and knowledge-based.

Explore Sweden's unique regional income inequality trends from 1860 to 2000, contrasting it with other countries. Analyze the impact of government policies, market expansion, and migration on regional income convergence and divergence. Understand factors driving Sweden's economic dynamics.