Bridging the Economic Divide Within Countries: A Scorecard on the Performance of Regional Policies in Reducing Regional Income Disparities
Introduction
Regional inequalities represent an ever-present development challenge in most countries, especially those with large geographic areas under their jurisdictions. Globalization heightens these challenges as it places a premium on skills. With globalization, skills rather than the resource base of regions determine their competitiveness. Skilled workers gain at the expense of unskilled ones. As typically rich regions also have better educated and better skilled labor, the gulf between rich and poor regions widens. Large regional disparities represent serious threats as the inability of the state to deal with such inequities creates potential for disunity and, in extreme cases, for disintegration. While the policy challenges in reducing regional disparities are large, the division of powers in the federation curtails federal flexibility in the choice of instruments. Central governments in unitary states are, on the other hand, relatively unconstrained in their choice of appropriate policies and instruments. Under these circumstances, there is a presumption in development economics that a decentralized fiscal constitution would lead to ever-widening regional inequalities. This paper attempts to provide an empirical test of this hypothesis.
The paper is organized as follows. Section 2 provides an introductory overview of various measures of regional inequality that are available from the literature. Section 3 provides estimation of inequality measures for a sample of eight industrial1 and 18 developing countries. These countries are further subgrouped in federal and unitary countries for analytical purposes. For a smaller subset of 14 countries, Section 4 presents evidence on historical trends in regional disparities in per capita income.2 Section 5 provides a summary scorecard on national policies for regional development.
Section snippets
Measures of regional inequality
Interest in income inequality has led to the development of several ways of measuring it. Two types of measures are of interest in this paper––static and dynamic. Static measures provide a snapshot of these inequalities at a point of time whereas the dynamic measures capture historical trends. These are described below in turn:
Regional disparities––a crosscountry snapshot
The data on regional GRDPs are available only for a surprisingly small number of developing countries. We could find such data for eight industrial and 17 developing countries. In the following, measures of regional income inequality are presented separately for industrial and nonindustrial countries. The experiences of federal and unitary countries are also compared. Before we proceed, we want to make two brief points. First, we have deliberately used per capita GRDP as a basis for all
Regional income disparities and convergence
In this section, the time trends of inequality for 16 different countries are presented to discern the degree of convergence.
Regional inequalities and convergence––a scorecard on national policies for regional development
The empirical analysis presented in the earlier sections is summarized in Table 7. The following conclusions emerge from this analysis.
Regional development policies have failed in almost all countries––federal and unitary alike––to reduce regional inequalities.
Acknowledgements
The authors are grateful to the four anonymous reviewers of this journal for helpful comments. We are also grateful to the following individuals for their valuable help in obtaining regional GDP data and other information used in this study: David Rosenblatt, Ritva S. Reinikka, Alberto Valdes, Viet Tuan Dinh, Hanid Mukhtar, Sayyora Umarova, Fahretin Yagci, Joachim Von Amsberg, Magda Adriani, Princess Ventura, Xiofan Liu, Cornelia Giurescu, Timothy E. Heleniak, Mariana Urbiola, Mariusz Safin,
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