Regional inequalities

Michael Dunford
School of Social sciences and Cultural Studies
University of Sussex, Falmer, Brighton BN1 9QN
Tel : (44) (0)1273 606755
Email : M.F.Dunford@sussex.ac.uk

Synopsis
Analyses of regional inequalities rest on the examination of differences in abstract/general
characteristics that regional economies share. Most attention is paid to their relative income and
wealth and to the way in which they change over the course of time: if inequalities get smaller,
convergence or catch-up occurs, and if they get wider, divergence is said to occur. This entry
outlines the steps involved in examining regional inequalities and their evolution, starting with
the definition of suitable territorial entities, the identification of indicators of wealth and income
and the definition of ways of measuring inequality. these methods are used to outline the degree
of regional inequality in the European Union and the evolution of disparities in the European
Union, Italy and China. The empirical evidence indicates that regional economies can diverge
or converge depending on the relative weight of equalising and unequalising forces. Although
attention is concentrated on the geography of the creation of wealth and income, it is important
to note that this geography is modified by a range of redistribution mechanisms.

Key words
definition of regions, Gross Domestic Product, Purchasing Power Standards, measures of
inequality, Gini coefficient, Theil index, convergence, conditional convergence, club
convergence, divergence, European Union, Italy, China

Glossary entries
regional inequality: regional inequality is used to refer to differences in the quality of life,
wealth and living standards of people living and/working in different places. The emphasis is on
differences in human welfare or well-being, and on related aspects of regional life.
region: regions are defined either as homogeneous regions that share certain characteristics, or
as analytical or functional regions that are made up of places that are interdependent or as
administrative regions are regions established to manage certain activities.
Gross Domestic Product (GDP): GDP is a measure of aggregate value added. As new wealth
created in production is distributed to those who participate in economic life, GDP is also a
measure of primary incomes (profits, interest, rents and wages) accruing to those who
contribute to a region's economic activities. The primary distribution of income is subsequently
modified by state-administered redistribution. The result is the secondary distribution of
income. These secondary incomes are saved and/or spent, and thereby permit the establishment
1

of claims over the goods and services produced. Measurement of these expenditures
(conventionally divided into consumer and government expenditure, investment/savings and net
exports) offers a third way of measuring GDP.
Purchasing Power Standards (PPS): PPS are quantitative indicators of the allowance that must
be made for differences in the prices of goods and services in different areas. The quantity of
goods and services that a given amount of an international currency will exchange for is greater
in a low cost than in a high cost region. The PPS measure allows for these differences in
purchasing power and is therefore an index of the volume of goods and services that different
local economies produce.
Theil index: the Theil index has its roots in the concept of entropy developed in the field of
information theory to measure the amount of information contained in a random event. The
central idea was that the information content of an event was an increasing function of the
degree of uncertainty associated with its occurrence. The more unexpected an event, the greater
its information content, and vice-versa: telling someone that a ball drawn from a box containing
only red balls is red has, for example, zero information content as the outcome is certain. More
specifically the information content of an event is inversely proportional to the probability of its
occurrence: if there are n events, of which one is certain to occur, if the probability of a each
n
event is xi and if i 1 xi = 1, the expected information content or entropy of an event is given
by
=

1
( 1)
xi
i 1
To adapt this index to the measurement of inequality, Theil replaced probabilities with income
shares, identified a positive relationship between the degree of entropy and the degree of
equality and arrived at a measure of the degree of inequality by subtracting the resultant
measure of equality from its maximum value (which occurs when all individuals get the same
income share or all groups get a share that is proportional to the size of the group as a share of
the total population).
H ( x)

xi

log

Suppose that pi denotes the population of the i th region (i

GDP. The Theil coefficient (TC) is given by the equation:
n

TC

i=1

qi
n

1 qi

1,2,

...,

n), and that qi denotes its

qi

loge

qi

pi
n
i = 1 pi

2)

This index can be interpreted 'as the expected information content of the indirect message which
transforms the population shares as prior probabilities into the income shares as posterior
probabilities', and as a measure of the gap between the share of the population that each
individual or group accounts for and the share of income it receives.
convergence hypothesis: the convergence hypothesis is the idea that economies characterised by
2

similar conditions would converge on a similar steady state rate of growths and similar per
capita incomes incomes, with economies that are less developed growing faster than economies
that are more developed. Empirically this claim is associated with the and the convergence
hypotheses. According to this hypothesis the slope parameter, (1 et) / t , of regressions of per

capita GDP growth in t years, yt , on the logarithm of initial GDP per head, y0, will be negative.
According to the latter the dispersion of regional incomes will diminish.

Introduction
All regions are unique, as indeed are all of the natural and social phenomena about which
generalizations are nonetheless made and theories are developed. Generalizations about regions
are possible as all regions also have things in common with others: the types of soil, its fertility,
the types of settlement are all characteristics that may be found in other regions. The
identification of characteristics that are in significant respects common and/or similar requires
the use of a process of abstraction. In social science approaches to geography these abstractions
are the starting point for the making of generalizations and the development of theories. Once
developed these theories are the starting point for a process of thought which moves in the
opposite direction from abstract theories to concrete realties in which all of the details set aside
are reintegrated such that particular regions emerge as a synthesis of many determinations. In
this social science approach to geography inequality is not used to refer in a general manner to
differences or an absence of sameness. Instead inequality is used to refer to a narrower set of
differences in a subset of the characteristics of different places. This subset includes the quality
of life, wealth and living standards of people living and/working in different places. The
emphasis is on differences in human welfare or well-being, and on related aspects of regional
life.
The literature on regional inequalities (which derives from a number of disciplines that include
geography, economics, sociology, political science and regional science) deals with a large
range of indicators representing the wealth, income, employment, life expectancy, health and
education of the inhabitants of different places. Most of this literature focuses on income
inequalities, although attempts to explain these inequalities involve consideration of possible
economic, demographic, political and cultural differences that may cause income inequalities.
In this entry most attention will be paid to income inequalities. Attention will also be paid to the
identification of regional entities and the implications of regional classifications, indicators of
inequality and the analysis of trends in regional inequality. Some attention will be paid to
factors that underpin differences in regional incomes. Much of the research that seeks to explain
regional inequalities is considered in the entry on regional development models.

Which territorial units?

Essentially there are three ways in which regions can be defined. Homogeneous regions are
regions that are made up of areas that share certain characteristics. Examples include climatic
3

regions that share a common climatic regime. Other examples include areas classified according
to their altitude, their soil and vegetation conditions or certain population characteristics (such
as ethnicity or religious affiliation). Analytical or functional regions are regions that are made
up of places that are interdependent. A travel to work area comprising employment centres and
the places where the people working in these centres reside, or shopping centres and the places
from which people travel to use these retail outlets, are examples. Administrative regions are
regions established to manage certain activities. Examples include nation states and subnational government areas, or areas for the provision of health or education services. In this case
regions are defined according for example to the size of the population considered necessary to
carry out these tasks efficiently perhaps respecting historical legacies or cultural distinctions.
The principle underpinning the establishment of the French dpartements was for example the
distance that an official could travel in one day on horseback. From an analytical point of view,
the most sensible areas are functional, as they combine centres of wealth creation for example
with the residences of the people who create this wealth, although functional areas do have the
disadvantage that their limits change relatively rapidly. In most countries however regional
statistics are collected for administrative areas whose existence may/may not make any
functional sense.
An example of a regional classification used in regional analysis is the European Union's (EU)
Nomenclature of Units for Territorial Statistics (NUTS, although the acronym derives from the
French name). The NUTS system is at present a four-level hierarchical classification: each
Member State (NUTS 0) is divided into a whole number of NUTS 1 regions; each of NUTS 1
region is in turn subdivided into a whole number of NUTS 2 regions; and so on. Generally
speaking, the first three NUTS levels correspond to the main regional divisions in each Member
State: Lnder and Kreise in Germany; rgions and dpartements in France; Comunidades
autonomas and provincias in Spain; and regioni and provincie in Italy. To secure a degree of
international comparability and, more specifically, to try to ensure that the areas lie within
certain size limits (3-7 million people in NUTS 1 areas, 800,000 to 3 million in NUTS 2 areas
and 150,000 to 800.000 in NUTS 3 areas) a third administrative level is identified for each
member State: NUTS 1 for France, Italy, Greece, and Spain; NUTS 2 for Germany; and NUTS
3 for Belgium. At a more detailed level there are districts, municipalities and communes,
although these levels are not yet subject to the formal NUTS regulation.
The difficulty is that the national administrative and statistical regional divisions that are the
foundation stones of the NUTS classification are not derived from a common set of criteria and
in some cases make no functional sense whatever (Inner London is for example a NUTS 2
area). Although an attempt is made to identify areas that are comparable in economic size, the
size limits are guidelines rather than strict constraints. Consequently, the NUTS classification
does not provide a harmonised set of regional units. The 2003 Gross Domestic Product at
Purchasing Power Standards of Level 2 regions varied from Euro 423,398 million in Ile-de
France and 882.2 million in land in Finland. The population of land was just 26,302.
4

Another eight NUTS 2 areas had fewer than 250,000 inhabitants. At the other end of the scale
Ile-de-France had 11.234 million inhabitants, Lombardia 9.177 million and Andalucia 7.502
million.
In spite of these difficulties, the system is used for three important purposes. The first is the
collection, development and harmonisation of regional statistics. The second is the analysis of
regional economies and societies. The third is the framing of EU regional policies: eligibility for
Objective 1 Structural Fund assistance is established at the NUTS 2 level, while eligibility
under other priority Objectives is mainly established at the NUTS 3 level.

Which indicators?
Gross Domestic Product (GDP) per inhabitant is the indicator most often used to measure
regional inequalities. A community's GDP is a measure of aggregate value added. As the new
wealth created in production is distributed to those who participate in economic life, GDP is
also a measure of primary incomes (profits, interest, rents and wages) accruing to those who
contribute to a region's economic activities, although the income that results does not
necessarily accrue to a region's inhabitants: where the inhabitants of other regions have property
rights in a region, there is an outflow of income, as there is if the human capital of other regions
is used locally. GDP estimates do not include the value of those goods and services that people
produce for their own use. This omission is significant as self-provisioning which depends on
the resources a region's inhabitants control and can use varies significantly from one place to
another. The activities of the informal and hidden economies are conversely included at least
insofar as government statisticians are able to estimate their magnitude. The primary
distribution of income is subsequently modified by state-administered redistribution. The result
is the secondary distribution of income. These secondary incomes are saved and/or spent, and
thereby permit the establishment of claims over the goods and services produced. Measurement
of these expenditures (conventionally divided into consumer and government expenditure,
investment/savings and net exports) offers a third way of measuring GDP. (The existence of
inconsistencies between these three estimates helps in the identification of undeclared incomes).
Inequalities in regional GDP per head can be measured in two ways. Measurements in a
common international currency indicate the international value of the output of regional
economies. The money value of regional output shows (1) what the output of the exposed sector
can be sold for and can command on international markets, and (2) what the output of the
protected sector can command directly on regional and indirectly on external markets. If a
region's external trade is in equilibrium, this indicator reflects the 'quality' of its goods and
services and its competitive strength. Measurements in Purchasing Power Standards (PPS)
make allowance for differences in the prices of goods and services in different areas: the
quantity of goods and services that a given amount of an international currency will exchange
for is greater in a low cost than in a high cost region. The PPS measure allows for these
differences in purchasing power and is therefore an index of the volume of goods and services
5

that different local economies produce and the volume of output that their economic activities
can command or exchange for in their own area. This second measure is, in other words, an
indicator of differences in living standards. A related distinction can be made between
qualitative and quantitative growth: increases in the value high-quality goods and services can
command on international markets and quantitative increases in the volume of goods and
services that command low prices on world markets.
GDP per head and its growth can be split into productivity and employment rate elements, as
the following identities indicate:
Gross Domestic Product
Resident Population

Gross Domestic Product

( Annual Hours Worked

Gross Domestic Product

Employed Population

Annual Hours Worked

Employed Population )

Employed Population
Resident Population
Employed Population
Resident Population

and
G(

Gross Domestic Product

)
Population

G (Gross Domestic Product )

G (Population)

Gross Domestic Product

Annual Hours Worked
Employed Population
+ G
+ G
)
(
(
)
Annual Hours Worked
Employed Population
Resident Population )
This partitioning of GDP per head into elements that reflect the productive performance of
regional economies and some of the features of their labour markets is widely used as an initial
step in the identification of the determinants of regional inequalities.
=

G(

Which measures of inequality?

The simplest measures of inequality are the standard deviation, the mean absolute deviation, the
Gini coefficient, and the Theil index. In the case of the first three measures unweighted and
weighted variants are used. An unweighted indicator gives equal weight to the average per
capita income of each regional economy. An example is a simple standard deviation or
coefficient of variation. A weighted indicator makes allowance for the fact that the population
of regional economies varies. In this case the average income of each regional economy is
weighted by its number of inhabitants. (Measures of social as opposed to regional inequality
deal with the incomes of individual households or individuals each of which is weighted equally
instead of regional averages).
The definitions of the most important of these indicators are set out in the following equations.
If
denotes the population of the th region (
),
denotes its per capita GDP
and
denotes its GDP, the population-weighted standard deviation (WSD) is given by the
equation

(1)
6

and the weighted absolute deviation (WAD) is given by the equation

(2)
To facilitate comparisons the weighted standard deviation and the weighted absolute deviations
are expressed as percentages of the mean to give a coefficient of variation (CV).
The Gini coefficient (GC) is given by the equation

(3)
As with the indicators based on the mean, the deviations from which the Gini coefficient is
calculated can be weighted by the product of the shares of the total population in each pair of
regions.
Finally, the Theil coefficient (TC) is given by the equation

(4)

Territorial units and the measurement of inequality

In analysing regional inequality it is important to recognise that measured inequality increases
with the level of spatial disaggregation. Suppose a country is divided into 16 areas (A1, A2, ...,
D4) with similar populations but different levels of GDP per head, and that these areas are
grouped first into four and then into two regions (see Figure 1A). The standard deviation
expressed as a percentage of the mean decreases from 38.5 per cent (16 areas) to 10.6 (4 areas:
A1..B2, A3..B4, C1..D2 and C3..D4) and 3.22 (2 areas: A1..B4 and C1..D4). It is important to
note however that the choice of regional boundaries can affect the result. If in Figure 1A the 16
areas are divided horizontally rather than vertically into two groups (A1..D2 and A3..D4) the
indicator falls to 9.67 instead of 3.22. Alternatively if four areas are identified in the manner
indicated in Figure 1B the coefficient of variation will equal 24.7. Measured regional disparities
depend, therefore, not just on the degree of spatial concentration of economic activities, but also
on the regional division of the country: the number of areas and the choice of boundaries affect
the measure of disparity, just as the delimitation of electoral districts shapes the outcome of
elections. Clearly the ideal solution is to use functional economic areas which combine places
of work with corresponding places of residence, though disparities between politically
identified areas are significant as determinants of the resources over which different
communities can exercise political leverage.

(A)

(B)

10 5

10

10

10

11 10

10

10

10

20

10

12 10

15

20

10

10

13 5

10

10

1 5

10

10

2 10

10

10

3 10

15

4 5

10

Figure 1 Measured inequality and regional division

National and regional inequalities in the EU

Figure 2 records per capita GDP at PPS in 2003 for the NUTS 2 regions in the EU25, for NUTS
2 regions in Bulgaria, Romania and Croatia and the national average for Turkey. Countries are
ordered according to their GDP per head from Luxembourg (233.9%) and Ireland (134.1%) to
Turkey (26.5%), with national GDP per head represented by diamonds. The extreme values
differ by a factor of more than 8.8. The figure for Ireland should however be treated with
caution. Irish GDP far exceeds the Irish GNP: the incomes that accrue to people who live in
Ireland is some 17% less than the income created in Ireland. The reason for this discrepancy is
that much of the wealth created in Ireland is produced by multinational companies that
withdraw profits and that engage in transfer pricing arrangements. Transfer pricing results in an
overstatement of the wealth created in Ireland. For each country other than Turkey regional
GDP per head figures are recorded in the columns as circles. In most countries and in this group
of countries as a whole there are wide regional disparities. At one extreme lie Inner London
(277.6%), Brussels (237.6%), Luxembourg (233.9%), Ile de France (173.3%) and Vienna
(170.9%), although the figures for the first two areas must be treated with extreme caution as
these areas are areas of substantial net inward commuting. At the other end of the spectrum
were Nord-Est (21.7%) and Sud (24.4%) in Romania, and Severen Tsentralen (24.1%),
Yuzhen tsentralen (24.6%) and Yugoiztochen (24.9%) in Bulgaria.

GDP per head at PPS as % of EU25 average in 2003

300
275
250
225
200
175
150
125
100
75
50
25

Lu

xe

m
bo
et Ire urg
he la
D rlannd
en d
m s
U
Au ar
ni
te B st k
d el ria
Ki gi
n u
Swgdom
m
Fi ede
n n
Fr lan
G a d
er nc
m e
an
I y
Sptaly
G ai
r n
C eec
Sl ypr e
o u
Po ven s
C
ze
r ia
ch tug
R Ma al
e
H publta
u
Sl ngalic
ov r
Es ak y
t ia
Po oni
a
C la
Li roand
th t
ua ia
n
L
R at ia
om vi
Bu an a
lg ia
Tu aria
rk
ey

Figure 2 National and regional inequalities in the EU25 plus Bulgaria, Croatia, Romania and
Turkey Source: elaborated from data from Eurostat

The dynamics of regional inequalities: convergence or divergence?

In 1955 Kuznets suggested that income there is an inverted-U shaped relationship between
inequality and income per head: as an economy starts to develop and people move from
agricultural to industrial jobs and from rural to urban areas, inequality increases; as income per
capita increases further, this relationship is reversed and inequality declines. (Other research has
pointed to the existence of a non-linear relationship between urbanization and development).
For Kuznets the technical reason for the increase in inequality was that the transition to an
industrial society was unskilled labour saving. In 1965 Williamson extended this argument to
regional inequalities and argued that regional inequalities will at first increase and subsequently
decrease as the level of economic development increases. Williamson argued that the evolution
of regional inequalities was a result of a set of spillovers associated with different stages of
economic development including migration, capital flows, government policies and
interregional trade. As evidence Williamson relied on time series data for the first half of the
twentieth century which showed that regional inequalities increase in less developed countries
and decrease in the more developed countries and on cross-sectional data which showed that
regional disparities are greater in less developed and smaller in more developed ones countries.
Williamson concluded that regional income inequalities are a natural consequence of the
9

economic development and that any attempts to reduce them might inhibit development.
More recent work on the dynamics of regional inequalities involved investigation of the
convergence hypothesis. The initial idea derived from the expectation that economies
characterised by similar conditions would converge on a similar steady state rate of growths and
similar per capita incomes incomes, with economies that are less developed growing faster than
economies that are more developed. Empirically this claim is associated with the convergence
hypothesis. According to this hypothesis the slope parameter, (1 et) / t , of regressions of per

capita GDP growth in t years, yt , on the logarithm of initial GDP per head, y0, will be negative
(see Figure 3.1A). (It is important to note that this exercise is statistically questionable. What is
involved is the estimation of an equation in which initial income appears on the two sides, once
with a positive sign and once with a negative sign. In these circumstances a negative regression
coefficient is is at least in part a result of correlating a variable with itself).

A Neoclassical convergence

B Club convergence

yit

yit

yit

log (yi0)

yit

log (yi0)

C Conditional convergence

yit

log (yi0)

log (yi0)

yit

ei t

log (yi0)

log (yi0)

Figure 3 Convergence in reduced form neoclassical growth models

Two factors underpin the expectation of faster growth of less developed economies. The first is
the existence of diminishing returns to capital and constant returns to scale. At any given level
of technological development, these conditions imply that increases in per capita output get
smaller as the amount of capital per worker increases (areas with low K/L grow faster than
areas with high K/L), that increases in productivity cease once a steady-state/equilibrium
amount of capital per worker is reached, that increases in per capita output associated with
incremental investments are greatest in areas/enterprises that are the least mechanised and that
countries that differ only in initial levels of per capita GDP will converge on the same level of
GDP per capita. The second is the view that technology is a public good available at no cost to
everyone and that the diffusion of technology and of knowledge from advanced to less
developed enterprises and areas would close technology and productivity gaps.
Empirical convergence hypothesis research showed that there were differences in regional
steady state growth rates and permanent differences in income per head. As a result emphasis
was placed on theories of conditional and club convergence that predict cross-sectional
heterogeneity as a result of differences in economic conditions (see Figure 3.1B and C).
10

Theories of club convergence attribute differences in performance to the fact that economies fall
into different groups/clubs because of differing initial conditions. Theories of conditional
convergence attribute differences to the cross-area heterogeneity of control variables such as
rates of accumulation or the quality of modes of governance. In this much more restricted
context the convergence that does occur is finally very slow: economies converge at only about
2% per year on their own steady state as determined by structural characteristics and starting
conditions.
A second strand of empirical research concentrates more on the evolution of the dispersion of
regional incomes (sometimes called convergence). In this case the unweighted and weighted
indicators identified earlier are used.
A third strand of empirical research is the distribution dynamics approach. This approach
involves the application of Markov Chain techniques (using either discrete transition probability
matrices or continuous stochastic kernels) to examine the evolution of the entire income
distribution. Existing research drawing on these methods has indicated complex changes in the
dynamics of relative income per head including divergence, the persistence of inequalities,
movements within the distribution and polarization. Modelling the evolution of the distribution
of regional and individual income with these techniques, Quah found, for example, a tendency
for the emergence of twin peak distributions with high frequencies for relatively high and
relatively low incomes and relatively small frequencies for incomes in the middle of the
distribution.

Trends in regional inequalities

Empirical evidence derived from research employing these indicators places a question mark
over the Williamson hypothesis. The reason why is that in many developed economies regional
inequalities, which did indeed diminish in the 1960s and 1970s, started to increase again in the
1980s and 1990s. What is more in these countries the rates of economic growth were faster in
the years of diminishing regional inequality than in the subsequent years of widening regional
inequality.
Figures 4 plots the evolution of disparities between the Member States of the EU15 from 1951
until 2001, while Figure 5 plots the evolution of regional disparities in Italy. The first chart
indicates that there was strong convergence amongst the EU15 Member States from 1951 until
the mid 1970s. In this period (often referred to as a post-war Golden Age) European economies
experienced unprecedentedly fast economic growth: growth was associated with increases in
territorial (and social) equality, while the movement in the direction of greater equality made
positive contributions to European growth through, for example, their effects on the expansion
of markets. Until the mid 1980s, however, divergence prevailed. At that point in time a renewed
process of convergence was set in motion as a result of the relatively fast growth of the
economically less developed Cohesion Countries and the relatively slow growth of more
developed EU economies.
11

Theil coef f icient

WMAD / MEAN , WSD / MEAN

40

35

1000
50
40

Theil coef f icient

30

30

25

20

20

10
WSD / MEAN

15

0
WMAD / MEAN

10

-10

-20

0
1951

-30
1956

1961

1965

1970

1975

1980

1985

1990

1995

2000

Figure 4 Trends in inequality in GDP per inhabitant in the EU15, 1951-2002. Source:
elaborated from Eurostat

In the case of Italy's regional economies there was a sharp decline in disparities in 1951-53 after
which territorial inequalities increased in the 1950s. In 1960, the degree of inequality was close
to its 1951 level. In 1960-75 the situation changed dramatically. For 15 years there was strong
catch-up as the less developed parts of Italy closed the gap on the more developed. (The late
1950s and early 1960s were the years of Italy's economic miracle). After 1975 there was a
reversal in the trend. Overall there was a clear increase in inequality, with the Theil coefficient
reaching 37.8 and WMAD 24.6 in 1996. A not insignificant part of the relative improvement
that had occurred after 1960 was reversed in 1975 and after 1983. In the last few years,
conversely, there was a renewed phase of convergence, with the Theil coefficient declining to
34.2 in 2000.

12

GDP per resident

WMAD 100

Theil coefficient 1000

40

60

Theil coefficient
35

50

30

40
WMAD

25

30

20

20

15
1951

1961

1971

1981

Employment rate

WMAD 100

1991

10
2001

Theil coefficient 1000

20

20

19

18
Theil coefficient

18

16

17

14

16

12

15

10

14

8
WMAD

13

12

11

10

0
1970

1975

1980

1985

1990

Apparent productivity

WMAD 100

1995

2000

Theil coefficient 1000

14

13

8
Theil coefficient

12

11

6
WMAD

10

1
1970

1975

1980

1985

1990

1995

2000

Figure 5 Trends in Italian regional inequality: disparities in regional GDP per resident, apparent
productivity and employment rates, 1951-2000. Source: Dunford and Greco, 2006
13

Also striking is the fact that the recent evolution of Italian regional inequalities is a result of
opposite trends in regional productivity and employment rates. As Figure 5 shows productivity
differentials have tended to decline. In 1972-96 employment rate differentials generally moved
in the opposite direction. Clearly, it is not productivity differentials that account for the recent
overall increase in Italian regional inequality, as productivity differentials have tended to
diminish, though productivity differentials remain a significant determinant of differences in the
levels of regional development in contemporary Italy. At the root of the inequality increases up
to 1996 were very sharp increases in employment rate variations.
As these two examples show, there are relatively sustained periods in which unequalising
tendencies outweigh equalising tendencies and vice-versa. (These empirical outcomes also
reflect, of course, the impact of government policies designed to reduce development
differences of which EU Structural and Cohesion Policies are an important example).
A second important feature of empirical trends in relative development is the persistence of
territorial inequalities. Figure 6 records the evolution of Italy's regional economies relative to
the EU15 average. Amongst other things, it reveals a high degree of inertia at the top and
bottom end of the distribution: the top regional economies in 1951 remained for the most part at
the top end of the distribution in 2000, just as the regional economies at the bottom end tended
to remain at the bottom, although it also indicates some striking changes in the relative position
of regional economies in the middle of the distribution.

14

GDP per head (EU15=100)

GDP per head (EU15=100)

160

160

150

150

140

Lombardia: 2 -> 3

130

Valle d'Aosta: 1 -> 1

140

130

Trentino Alto Adige: 6 -> 2

Piemonte: 4 -> 6

120

Emilia-Romagna: 7 -> 4

120

Liguria: 3 -> 9
110

110

Veneto: 10 -> 5

Toscana: 9 -> 8
Lazio: 8 -> 10

100

100
Marche: 13 -> 11
Umbria: 12 -> 12

90

80

Friuli-Venezia Giulia: 5 -> 7

Sardegna: 11 -> 14

90

80

Abruzzo and Molise: 16 -> 13

Puglia: 15 -> 16
70

60

70
Campania: 14 -> 18

50

Sicilia: 17 -> 17
60

50

Basilicata: 19 -> 15

Calabria: 18 -> 19
40
1950 1960 1970 1980 1990 2000

40
1950 1960 1970 1980 1990 2000

Figure 6 Growth of Italy's regional economies relative to the EU15 average, 1951-2000. Source:
Dunford and Greco, 2006
Evidence of phases of increasing and diminishing inequalities is not confined to the EU. Kanbur
and Zhang's analysis of inequalities in real per capita consumption in 28 of China's 30 provinces
(Tibet and Hainan were excluded) also identified phases of convergence and phases of
divergence. This research also pointed to a close relationship between trends in inequality
between provinces, urban and rural areas and coastal and inland areas (Figure 7) and phases in
Chinese economic and political development. The early years of Communist rule marked by
land reform,were associated with a low and steady degree of inequality. In 1957 China
embarked on the Great Leap Forward (sharply raising investment in heavy industries) which
itself gave way to the Great Famine. In these years inequalities increased, peaking in 1960.
From 1960 until 1967 inequalities diminished. 1966 saw the start of the Cultural Revolution
which opened a phase of increasing inequality, with a peak in 1976. 1978 marked a major
turning point. An initial phase of rural reform saw inequalities continue to decline. After 1984
15

in a period of political decentralization, increased foreign trade and foreign direct investment
provincial, urban-rural and inland-coastal inequalities all increased sharply. Overall inequality
was relatively small when the development model was favourable to agriculture and the
countryside.
Total inter-provincial (generalized entropy) and rural-urban inequality

Inland-coastal inequality

30

4.5

20

3.0
inter-provincial inequality

1.5

10
rural-urban inequality

inland-coastal inequality
0
1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

Figure 7 Spatial inequality in China, 1952-2000 Source: elaborated from Kanbur and Zhang
(2001)

Conclusions
In this entry most attention has been paid to regional variations in wealth creation. The evolving
geography of wealth creation is underpinned by the evolving geography of economic activities
and the dynamics of labour markets and population distribution. These drivers are themselves
shaped not just by economic mechanisms but also institutional factors and political choices
(including for example specific policies designed to create a more equal distribution of people
and work). Each of these drivers is associated with equalising and unequalising tendencies.
Whether regional inequalities increase or decrease depends on the relative weight of these two
sets of forces and more generally on the underlying model of development. Inequalities are
however not just a result of the geography of wealth creation. Income redistribution and
transfers towards economically disadvantaged regions are often substantial so that variations in
income and consumption are often smaller than variations in wealth creation. Health, education
and collective services are often entitlements and as such are distributed far more equally than
other economic activities.

References
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European regions, London : Pion
Armstrong, Harvey and Taylor, Jim (2000) Regional economics and policy. Blackwell
Publishers, Oxford.
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Barro, Robert and Sala i Martin, Xavier (1992) Convergence. Journal of Political Economy,
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Bishop, Paul and Gripaios, Peter (2005) Patterns of persistence and mobility in GDP per head
across GB counties, Tijdschrift voor Economische en Sociale Geografie, 96(5): 529-40
Dunford, Michael (1993) 'Regional disparities in the European Community: evidence from the
REGIO databank', Regional Studies, 27(8): 727-43
Dunford, Michael and Greco, Lidia (2006) After the three Italies: wealth, inequality and
industrial change, RGS-IBG Research series, Oxford: Blackwell
Fan, C. Cindy and Casetti, Emilio (1994) The spatial and temporal dynamics of US regional
income inequality, 1950-1989, The Annals of Regional Science 28(2): 177-196
Kanbur, Ravi and Zhang, Xiaobo (2001) 'Fifty years of regional inequality in China: a journey
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Web sites
The UC atlas of global inequality: http://ucatlas.ucsc.edu/

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