Regional growth under a monetary perspective: a theoretical model with empirical application to the Brazilian case

Teófilo de Paula, Fábio Gama and Marco Crocco

Journal of Post Keynesian Economics, 2020, vol. 43, issue 4, 657-673

Abstract: This study aims to establish a link between the regional growth rate and the Keynesian concept of Liquidity Preference from a model of Circular Cumulative Causation. Particularly, it replaces Verdoorn's Law by a mutual causal relationship between credit and regional growth rate. The model is represented by a first-order difference equation dynamic system. The analytical solution suggests that regional changes in Liquidity Preference lead to a Center/Periphery pattern of growth. An empirical application is performed for the Brazilian case, using banking variables at state level in a GMM estimation for Dynamic Panel Data. The results corroborate the hypothesis of persistent different growth rates between the more and the less-developed Brazilian regions.

Date: 2020
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DOI: 10.1080/01603477.2020.1713005

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