Growth and Convergence in Income Per Capita and Income Inequality in the Regions of the EU

Abstract

The neoclassical growth model predicts that there will be both a reduction of income per capita disparities over time and long-term convergence in income inequality levels. This paper examines whether this holds true for the EU using data from the European Community Household Panel for 102 regions over the period 1995–2000. The analysis is conducted using cross-sectional and panel data growth models with spatial interaction effects. The results reveal the presence of a conditional convergence in income per capita after controlling for educational attainment, unemployment, sectoral composition, spatially lagged growth of income per capita, and regional fixed effects, and that of an unconditional convergence in income inequality. Expansion et convergence dans les revenus par habitant et inégalité des revenus dans les régions de l'UE RÉSUMÉ Le modèle de croissance néoclassique prévoit que l'on assistera, à terme, à une réduction des disparités entre les revenus par habitant, ainsi qu’à une convergence à long terme des disparités dans l'inégalité des revenus. La présente communication examine l'applicabilité éventuelle de ce modèle à l'UE, en utilisant des données de l'European Community Household Panel pour 102 régions, au cours de la période 1995–2000. On effectue cette analyse en utilisant des modèles de croissance transversaux et de commissions, avec des effets d'interaction spatiale: ses résultats révèlent l'existence d'une convergence des revenus par habitant, après avoir contrôlé les réalisations éducationnelles, la composition sectorielle, la croissance du retard spatial des revenus par habitant, ainsi que des effets régionaux fixes, ainsi que la présence d'une convergence inconditionnelle dans l'inégalité des revenus. Crecimiento y convergencia en ingresos per capita y desigualdad de ingresos en las regiones de la UE RÉSUMÉN El modelo neoclásico de crecimiento predice que con el tiempo se producirá una reducción de las disparidades en los ingresos per capita, así como una convergencia a largo plazo de los niveles de desigualdad de ingresos. Este trabajo examina la veracidad de este caso en la UE utilizando datos procedentes del European Community Household Panel aplicables a 102 regiones durante el período 1995–2000. El análisis se conduce utilizando modelos de crecimiento de datos transeccionales y de panel con efectos de interacción espacial. Los resultados revelan la presencia de una convergencia condicional en los ingresos per capita después de controlar el rendimiento educacional, desempleo, composición sectoral, crecimiento limitado espacialmente de los ingresos per capita y efectos regionales fijos, así como la presencia de una convergencia incondicional en la desigualdad de ingresos.Income inequality, convergence, spatial econometrics, Europe, C21, C23, O12, O52,

Problems with Regional Production Functions and Estimates of Agglomeration Economies: A Caveat Emptor for Regional Scientists

“…There are now numerous studies that have estimated absolute and conditional beta convergence for the regions, with the more recent ones mainly concentrating on conditional beta convergence. See, for example, Barro and Sala-i- Martin (1991Martin ( , 2004, Armstrong (1995), Evans and Karras (1996), Rey and Montouri (1997), Garofalo and Yamarik (2002), Badinger et al (2004), Egger et al (2006), Benos and Karagiannis (2008), Esposti and Bussoletti (2008), and Tselios (2009). See also the survey of Martin and Sunley (1998).…”

“…See also the surveys on agglomeration economies by Rosenthal andStrange (2004, 2006) and the World Bank (2009, chapter 4). The rate of regional productivity convergence is considered by Armstrong (1995), Barro andSala-i-Martin (1991, 2004, especially chapter 11), Eckey et al (2007), Maier andTrippl (2009), andTselios (2009). The aggregate production function is central to all these applied studies and is used widely in theoretical spatial modeling.…”

Economic convergence and polarisation: towards a multi-dimensional approach

“…Recent studies added a further dimension to classical convergence studies by including the questions of income distribution and the growth rates of income (Tselios, V. 2009;Amarante, V. 2014;Castells-Quintana, D. and Royuela, V. 2014). For example, as Tselios (2009) suggested, there is a convergence not just in the growth rate of income, but also in growth rates of income inequalities.…”

Some Perpetually Old and New Development Issues in the EU Regions: Competitiveness, Resilience, and Convergence: Where Do the New Member States Stand?

“…Some studies (see [87]) suggested the presence of a conditional convergence in income per capita and that of an unconditional convergence in income inequality in many regions of the EU, while other studies indicated that the weak or even the lack of economic convergence is not matched by a similar absence of social convergence, as the welfare levels have converged significantly across European regions, although the regions with high social welfare levels may remain advantaged in welfare terms, while the low social welfare regions may continue to lag behind [109].…”

“…The main indicators used to analyze real convergence refer to the differences in GDP per capita at purchasing power parity and in income per capita, differences in labor productivity, and the price level (e.g., [87][88][89][90]). The literature highlights several indicators that can be used to assess the real convergence process, from broader indicators (GDP growth rate, GDP per capita, the ratio of exports to GDP, the intensity of foreign investment, stock market capitalization, unemployment rates, labor costs and R&D expenditures, etc.)…”