A closer look at the long-term patterns of regional income inequality in Spain: the poor stay poor (and stay together)

The publication of the 2010 Eurostat Regional Yearbook provides evidence to portray regional (NUTS2) income inequality in the European Union. Several features stand out. First, the wealthiest region, Inner London, has a per-capita GDP that is 3.24 times greater than the EU-27 average. Besides, Inner London’s per-capita GDP is 12 times that of Severozapaden (Bulgaria), the poorest region. Nevertheless, regional disparities do not just correspond to extreme cases, since a total of 68 regions have income levels less than 75% of the EU-27 average. In addition, the geography of regional inequality in Europe follows a well-defined and persistent spatial pattern, in which wealthy regions are clustered around a continental axis that stretches from the north to the centre of Europe (or the blue banana). These differences and their implications, have become a serious concern for economists and policymakers, and have fuelled the study of regional inequality.

From an economic history perspective it is worth noting the efforts to construct regional GDP estimates (Rosés and Wolf, forthcoming), thereby enabling researchers to make further progress in the study of long-run trends. That has also been the case of Spain. For a rather small territorial scale, province (NUTS3), novel per-capita GDP estimates allow us to create a decadal-dataset beginning in 1860 and ending in 2010. With these data, our aim is to analyse the long-run evolution of regional income inequality in Spain in terms of convergence and dispersion, and also evaluate aspects related to the income distribution, e.g. modality, mobility, spatial clustering. For this, a new EHES working paper by  Alfonso Díez-MinguelaJulio Martinez-Galarraga and Daniel A. Tirado makes use of various exploratory tools: kernel density estimates, boxplots, transition probability matrices, Shorrocks indices, Kendall’s τ, Moran’s I and LISA maps.

We begin our analysis looking at the long-run evolution of regional per-capita GDP inequality. In this sense, Williamson (1965) conjectured that along the process of economic development regional disparities exhibited an inverted U-shaped pattern, with increasing inequality in the early stages, mainly late 19th century, and convergence thereafter. Our results confirm this hypothesis for Spain 1860-2010. As figure 1 illustrates, there was an upswing in regional income inequality, measured with a population-weighted coefficient of variation (WCV), from 1860 to 1920. From then on, convergence across Spanish provinces prevails. However, this downward trend came to a halt in the last decades of the 20th century, and it might be reversing. Moreover, the U-shaped pattern has also been found in other European countries (i.e. Britain, France, Italy, Portugal) though not in Sweden and Belgium.

Figure 1. Regional (NUTS3) income inequality (WCV), Spain 1860-2010 (1860=1)

In Spain, during the early stages of modern economic growth, roughly 1860-1930, market integration was underway and modern technologies were becoming more widespread. With the advent of industrialisation, some Spanish provinces (Barcelona, Vizcaya) specialized in manufacturing, and thus regional inequality increased. Regional disparities were mainly due to the presence of a small group of rich provinces and a large majority of poor ones. This, in turn, stretched the upper tail of the distribution. Regional inequality thus reflected a small group of wealthy provinces and a majority of (relatively homogeneous) poor ones. However, this was compatible with moderate but sizeable mobility in income distribution insofar as the ranking of provinces underwent some changes. Furthermore, from a geographical perspective, relative income levels had a limited relationship with the location of territories within Spain. Spatial clustering, although statistically significant, was not very high, due mainly to the limited number of wealthy provinces. This would be consistent with the presence of poles with few non-contiguous dynamic provinces. 
Since the 1930s, regional disparities gradually declined. Even more, this coincided with the appearance of bimodality in the distribution, which came about not only due to a lessening of the differences between rich and poor, but also to the homogenisation of rich and poor. From 1930 to 2010 regional mobility declined, whereas spatial clustering increased. In this respect, Figure 2 shows the degree of spatial clustering (in terms of per-capita GDP) in 2000. To identify the geographic position of rich (poor) provinces and the degree of spatial autocorrelation, the figure presents Local Indicators of Spatial Association (LISA) of regional income inequality. In the map, blue coloured provinces illustrate the clusters with low per-capita GDP, while red ones reflect those that exhibit high levels.
Figure 2. Spatial clustering. LISA map, 2000

In short, although differences between rich and poor provinces decreased, their relative positions remained fairly stable. Therefore, in terms of policy-making, there are two main features that characterise regional economic inequality in Spain since the Civil War (1936-39). Firstly, there is a quasi-non-existent mobility in class or rank, i.e. provinces have somewhat retained their 1940 relative positions. Hence, the historical trajectories cannot be labelled as an American Dream or Nightmare on Elm Street. Quite the opposite, a marked stability is observed between 1920 and 2010. Secondly, there is a high degree of spatial correlation. This was already present in the previous period (1860-1930), but it has consolidated during the second half of the 20th century. Consequently, a map with ‘two Spains’ arises, where wealthy provinces are located in the north-east while the poorest ones cluster in the south. Bearing this in mind, spatial polarisation becomes a major concern. 
As a result, there appears to be little prospect of improvement for low-income regions that are located further away from the dynamic nodes. Regional policies, mainly applied during the late 20th century, might have had a short-term impact on relative income levels, but they have been unable to alter the long-term dynamics. In addition, the rise of an economic cluster in the north-east of the Iberian Peninsula may be a sign of the crucial and growing relevance of European markets. Interestingly, the centre of gravity has been gradually shifting from the south-west to the north-east. Greater openness and the accession to the EU have strengthened this movement. In recent years the relative poverty of the southern and western Spanish provinces has increased and the spatial polarization of income today is more striking than ever. European economic integration can only reinforce this tendency. Therefore, in the case of Spain, further European political and economic integration calls for the design of territorial cohesion policies aimed at counteracting the structural elements of economic regional inequality highlighted above.

References:
Rosés, J.R. and Wolf, N. (forthcoming). The economic development of Europe’s regions: a quantitative history since 1900 (New York: Routledge).
Williamson, J.G. 1965. ‘Regional inequality and the process of national development: a description of the patterns’. Economic Development and Cultural Change 13:4, Part II, 3-84.
This blog post was written by: Alfonso Díez-Minguela, Julio Martinez-Galarraga and Daniel A. Tirado (Universitat de València)
The working paper can be downloaded here: http://www.ehes.org/EHES_87.pdf

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