The opening of the North–South divide: Cumulative causation, household income disparity and the regional bonus in Taiwan 1976–2005

During the last decades regional income divergence seems to have reappeared in both developed and developing countries. In Taiwan – a renowned case of growth with equity – regional per capita income was converging until the early 1990s after which it began to diverge. With the help of modeled annual household survey data from 1976 to 2005 we indicate the magnitude of a regional bonus and discuss reasons behind the re-opening of the North–South income divide in Taiwan. Our analysis suggests that this process is a consequence of cumulative causation connected to the advent of the rise of ICT industry in conjunction with changes in Taiwan's political economy which provided relatively more advantageous economic opportunities for the industrial structure of the leading region.

► We analyse regional income disparity in Taiwan 1976–2005 using household survey data. ► We find regional per capita income convergence until the early 1990s, then divergence. ► We find a regional income bonus not explained by human capital factors. ► Divergence is explained by increasing returns to agglomeration in the North. ► Returns to agglomeration in the North are linked to the expansion of ICT industry.