The Crisis of the Core Seen through the Eyes of the Periphery: A Schelling Model of the Global-South Megacity and the European Crisis

Abstract

Adapting Schelling’s checker-board discrimination framework, we develop a disequilibrium model to examine growth in two core-periphery settings: global-South megacities and the Eurozone. Regarding megacities, informal sector growth undercuts the government’s capacity to fund fully adequate public services. Regarding the Eurozone, an increase in the relative size of the periphery will – under the government’s balanced-budget constraint – undercut the provision of public safety-net and infrastructure services. And if low-wage production is initiated in the European periphery, the core is likely to collapse. “Urbanization is decisive because it is so expensive. The difference between the costs of urban development and rural development does not turn on comparing the capital required for factories and that required for farms. Each of these is a small part of total investment, and the difference per head is not always in favor of industry. The difference turns on infrastructure.” W. Arthur Lewis (1977, pp. 39-40).

Key words: Schelling, Core and periphery, Informal-sector, Hernando De Soto, Global-South megacity, European crisis, Disequilibrium.
JEL:  C63, C70, E11, E12, O11, O17, P10