The impact of regional inequality on economic growth: a spatial econometric approach

Abstract

This paper investigates the relationship between economic growth and regional income inequality in a spatial econometric perspective. The role of space in the measure of inequality is discussed, and a new theoretical model that relates inequality with economic growth is introduced. The proposed model extends a spatial Mankiw–Romer–Weil specification by introducing regional income inequality as a determinant of economic growth. The measure of inequality proposed as a covariate in the model is derived by a spatial decomposition of the Gini index. An empirical analysis focused on European Union NUTS-2 regions is carried out to illustrate the model.

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