Abstract
AbstractRegional disparities reflect the development pattern in many countries. Rich regions or prosperous cities confirm the unbalanced nature of economic growth. However, there is the lack of studies undertaking the role of regional stratification in the national economy. This study explores the transmissions channels through which regional disparities may affect the country's growth. A system or recursive equation by means of the control function approach (CFA) was applied to empirically assess the weight of these mechanisms. The level of regional disparities within the EU countries at nomenclature of territotial units for statistics‐2 level was calculated applying economic polarization measures. Empirical results, based on panel data analysis, showed that overall regional disparities affect negatively growth. However, after exploring transmission channels of this relationship, it was shown that regional differences in human capital or investments may enhance growth at the national level. The results were robust to various estimation methods.
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