Analysis of Regional Inequality

Abstract

AbstractThis chapter introduces some analytical methods for regional income inequality. It first presents a bidimensional inequality decomposition method. Using the squared coefficient of variation (squared CV), income inequality can be decomposed not only by population subgroups but also by factor components. Using data on GDP by industrial sectors, the method combines these properties to explore the determinants of inter-provincial income inequality. Using data on GDP by industrial sectors, the squared CV can also be decomposed into variation and covariation components. This chapter also discusses this sectoral inequality decomposition method where one can analyze the roles of spatial covariations between industrial sectors in inter-provincial income inequality. Next, the chapter presents a two-stage nested hierarchical Theil decomposition method. Like the squared CV, the Theil indices can be decomposed by population subgroups. Using this decomposition property in the three-level hierarchical structure of a country (region-province-district), the method decomposes overall income inequality into three components: the between-region, between-province, and within-province components to explore the determinants of income inequality across districts. Finally, this chapter introduces a factor decomposition method. This method considers labor in addition to GDP and population and expresses GDP per capita as the product of labor productivity and labor participation rate. After linearizing this product, it additively decomposes regional income inequality into three components: inequality in labor productivity, inequality in labor participation rate, and residual component. The first two components are regional inequalities measured by the Theil index and take nonnegative values, while the residual component represents the interaction between labor productivity and labor participation rate, which can take negative values.KeywordsBidimensional inequality decomposition methodSectoral inequality decomposition methodTwo-stage nested hierarchical Theil decomposition methodFactor decomposition method