The dynamics of regional inequalities

This paper analyses the link between regional inequalities and GDP per capita at the country-level. Our starting hypothesis is that the evolution of regional inequalities should follow a bell-shaped curve as national GDP per capita rises since growth by its very nature is unlikely to appear everywhere at the same time, as has been argued by a number of authors, from Kuznets [Kuznets, S., (1955), Economic growth and income inequality, American Economic Review 45(1), 1–28] to Lucas [Lucas, R.E., (2000), “Some macroeconomics for the 21st century”, Journal of Economic Perspectives 14 (1), 159–168]. We test this hypothesis econometrically using semi-parametric estimation techniques and regional data for a panel of European countries. Our results provide strong support for such a bell-shaped curve and are robust to changing the regional administrative units and the time period, as well as controlling for other possible determinants of regional inequalities. We also find support for this hypothesis when considering non-European countries.