Economic Integration between the Global South and the Global North: A Two-Region Economic Growth Model

Abstract

Economic migration and foreign direct investment (FDI) play a crucial role in current-day economic integration processes and interact to shape the spatiotemporal dynamics of economic growth and international inequality. We develop a two-region economic growth model, apply this model to assess global macroeconomic dynamics and evaluate how investment, economic migration, technological growth, and human capital accumulation jointly affect economic growth. First, we find that FDI-driven technological growth is a necessary condition to ensure long-term convergence in output per capita between the Global North and the Global South. Second, economic integration policies aiming to reduce international inequality within the century require investment in the Global South, amounting to 1.5% of global GDP over the next four decades. Third, converging population growth rates between the Global South and the Global North, reflecting global educational trends, can increase the speed of economic convergence, but this effect is dominated by that of technological growth. In the current context of a widening investment gap to achieve the SDGs by 2030, the results of this paper support development policy measures aimed at increasing foreign direct investment in the Global South.

Keywords: economic integration, inequality, North-South model, foreign direct investment, labormigration, technological growth