Threshold effects and regional economic growth-evidence from West Germany

We study an overlapping generations model of human capital accumulation with threshold effects using regional data for West Germany. Our basic goal is to shed light on what makes German regions grow. The paper finds that the relative income distribution appears to be stratifying into a trimodal distribution. The results of threshold estimates imply that there is no simple relationship between income growth and human capital. The process of regional growth is marked by thresholds, pointing to the existence of different growth equilibria. Thus, application of the threshold model to a real world case, here West Germany, shows that the model might help to explain regional growth patterns.