Does the neoclassical growth model predict interregional convergence? On the impact of free factor movement and the implications for the European Union

This paper sets up a theoretical model of regional growth with free factor movement. The analysis shows that factor endowments are crucial for a region’s attractiveness regarding factor relocations. In particular, lower endowments of human capital within other regions are advantageous for a region’s growth prospects, and vice versa. The paper concludes that under the framework of free factor movement, the European Union’s objective of interregional convergence can only be achieved by subsidising disadvantaged economies.