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Decomposing European NUTS2 regional inequality from 1980 to 2009: national and European policy implications

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  • Doran, Justin
  • Jordan, Declan

Abstract

Purpose – The purpose of this paper is to analyse income inequality for a sample of 14 European countries and their composite regions using data from the Cambridge Econometrics regional dataset from 1980 to 2009. The purpose of the paper is to provide insight into the dynamics of regional and national cohesion among the EU-14 countries studied. Design/methodology/approach – Initially, inequality is decomposed using the Theil coefficient into between and within country inequality to assess the extent to which convergence has occurred. To investigate the underlying causes of the changes in inequality, the Theil coefficient is further decomposed to assess the contribution of productivity and employment-population ratio differentials to inequality. Findings – The results indicate that while between-country inequality has declined, within-country inequality has increased by approximately 50 percent. Subsequent decomposition indicates that while productivity levels among regions have converged, the employment-population ratios have diverged substantially driving increasing levels of inequality. This suggests that while EU cohesion policies have reduced productivity inequalities they have had little effect in stimulating convergence of employment-population ratios across regions. Research limitations/implications – The paper argues that national priorities, particularly in the context of the current European economic crisis, are likely to hinder European Union level policies to reduce income inequality at a regional level. This may result in further increases in regional inequality among European regions. Originality/value – This paper's main contribution is to highlight how national convergence can lead to regional divergence being overlooked. The value of the paper is that it provides policy insights, based on empirical evidence, for European cohesion policy.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44805.

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Date of creation: 2013
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Publication status: Published in Journal of Economic Studies 1.40(2013): pp. 22-38
Handle: RePEc:pra:mprapa:44805

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Keywords: Europe; Convergence; Cohesion Policy;

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  1. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, Econometric Society, vol. 47(4), pages 901-20, July.
  2. Michele Boldrin & Fabio Canova, 2001. "Inequality and convergence in Europe's regions: reconsidering European regional policies," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 16(32), pages 205-253, 04.
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  7. Marinella Terrasi, 1999. "Convergence and divergence across Italian regions," The Annals of Regional Science, Springer, Springer, vol. 33(4), pages 491-510.
  8. Ben Gardiner & Ron Martin & Tyler Peter, 2004. "Competitiveness, Productivity and Economic Growth across the European Regions," ERSA conference papers ersa04p333, European Regional Science Association.
  9. Diego Puga, 2002. "European regional policies in light of recent location theories," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 2(4), pages 373-406, October.
  10. Aadne Cappelen & Fulvio Castellacci & Jan Fagerberg & Bart Verspagen, 2003. "The Impact of EU Regional Support on Growth and Convergence in the European Union," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 41, pages 621-644, 09.
  11. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  12. Sergio J. Rey & Mark V. Janikas, 2005. "Regional convergence, inequality, and space," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 5(2), pages 155-176, April.
  13. Bernard Fingleton & Manfred Fischer, 2010. "Neoclassical theory versus new economic geography: competing explanations of cross-regional variation in economic development," The Annals of Regional Science, Springer, Springer, vol. 44(3), pages 467-491, June.
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Cited by:
  1. Elena Lasarte & Miguel Angel Marquez Paniagua, 2014. "Decomposition of Regional Income Inequality and Neighborhood Component: A Spatial Theil Index," Working Papers. Serie EC, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2014-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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