Modelling impact of urban-rural income convergence in the EU
2019
Auzina-Emsina, A., Riga Technical Univ. (Latvia) | Ozolina, V., Riga Technical Univ. (Latvia)
Urban-rural income convergence provides an opportunity to reduce the income inequality, ensuring cohesion and increasing economic output. The results show that urban-rural income convergence is a continuous tendency in the EU; the urban-urban income gap declines – rural population received 79% of net income of population living in cities in 2017 (in 2010 it was 69%). The rural population accounts for 27.3% of the EU and any changes have notable impact on the rest of the economy. Nationally the urban-rural income convergence dramatically differs amid the EU countries. In order to model an impact of urban-rural income convergence, a comparative-static approach that involves an input-output model is applied. Two scenarios are estimated for Latvia’s economy: rural net income in Latvia is assumed to be 89% of cities net income (as in the Euro Area average) in both scenarios, in the first one the saving rate is constant; in the second rural households anticipate the additional net income as a gift (saving rate for extra net income is equal to zero). The results of the first scenario argue that households final demand expenditures increase by 4.5%, output by 2.7%. The largest increase of output is modelled in chemical products (8.9%), paper products (8.7%), electrical equipment (6.2%), pharmaceutical products (6.1%), and textile (5.8%) industries. In the second scenario, the output increase: 3%. The results certify that the increase and convergence of income in rural areas are important even in advanced economies, such as the EU countries. The national and EU policies are welcome and can give notable impact on economic growth.
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