Spatial Inequality, Structural Transformation, and Barriers to Economic Convergence

• Applicant: Dr. Zainab Iftikhar
• Subject Area: Economic Policy, Applied Economics ; Economic Theory
• Term: since 2025
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 562601018

The literature that studies developed or emerging economies historically or over time suggests economic convergence in these economies resulted from the mass mobility of workers from less developed agricultural regions to more developed industrialized regions. These movements contributed to structural transformation and reduced spatial income inequality, contributing to the overall development process. However, the developing economies today, especially the African economies, where the development process has remained slow and anemic, have yet to observe such patterns. The recent literature focused on today’s developing economies proposes that the agricultural productivity gap (APG) is one of the root causes of the slow development process. There are two broad explanations for APG in developing countries; both concern limited labor mobility. On one hand, there are mobility frictions that prevent the efficient allocation of workers across sectors and space (“misallocation view”); on the other hand, self-sorting of workers (“selection view”) may explain the existing patterns of workers’ allocation and the observed AGP. Nonetheless, these channels are studied separately, and their interaction or relative contribution to the development process remains unexplored. In this project, we fill this gap by providing an empirical and model-based quantitative assessment of the relative contribution of the misallocation and selection to spatial inequality, structural transformation, and economic convergence in today’s developing world. For this purpose, we will first empirically investigate the self-sorting of workers by compiling and analyzing a rich dataset for Tanzania. Next, we will develop a two-sector dynamic structural model of spatial income inequality with heterogeneous labor, labor mobility, and trade costs. The model will integrate both misallocation and selection mechanisms. The stylized facts obtained from the empirical analysis and data on the sectoral and provincial level will be used to discipline the model and quantify the contribution of alternative explanations to spatial inequality, structural transformation, and economic convergence. We will use our model as a laboratory to conduct several policy experiments. These experiments will provide insights for policymakers in both developing and developed countries working on assisting developing countries on their quest for development.

• DFG Programme: Research Grants
• International Connection: Canada
• Cooperation Partner: Professor Dr. Tasso Adamopoulos