Increasing returns, migrations and convergence

The paper investigates the link between convergence and factor mobility. It contrasts the predictions of exogenous growth models (where factor mobility is found to promote convergence) with endogenous growth models (where factor mobility invariably leads to a cumulative process of regional divergence). The paper develops a simple model of regional growth with mobile factors, increasing returns to scale and diminishing returns to the reproducible factor. It also tries to provide more solid microfoundations to the specification of the migration choice. Because of diminishing returns to the reproducible factor, the economy will not be able to generate endogenous self-sustaining growth. Nevertheless, the results suggest that, even in the context of an exogenous growth model, convergence is not warranted. However, convergence may occur, for some particular constellations, despite the presence of increasing returns to scale. More precisely, it is shown that convergence is more likely the greater is the scope for scale economies and (somewhat paradoxically) the lower is the degree of labor mobility.