DGY = - βDY
(1)
Which means that if the income in a region is above the average (all region) income,
the growth rate should be below the average growth rate in order to move the regions
towards greater equality.
At increasing investment the income tend to increase too. Therefore
GY = α0 + a1GI
(2)
a0 - the autonomous growth rate.
α1 - the investment multiplier which is always supposed to be positive.
Now let us assume that the investments are attracted by rich areas then
GI = ' + 71 DY (3)
where
γ0 - is the autonomous (foreign) investment growth for DY = 0, or at MGI
γ1 - indicates the distributions of DFI due to the deviation of the region’s
income from the average income, or the region’s ability to attract increasing
investments at an increasing income level
We can now (see appendix 3) derive
DGY = α1γ1 DY
(4)
(5)
where
β = a1γ1 > 0 for γ1 > 0
which (when γ1 is positive) means that when investment growth is higher in rich
region’s than in poor regions then we expect growth against greater inequality,
because β will be positive.
We can now estimate (1) and (3) by Weighted Least Square where the weights are the
regions share of the total population (the prefix W in variable names is omitted to
facilitate readings.
DGI = .0000004893*DY R2 = .2045 Obs = 232
(7.74)
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