Abstract
This research extends the literature on regional inequalities in the European Union in two directions. First, it confirms the importance of institutions for regional inequalities among 18 EU member countries, and second, indicates which dimension of the institutional quality is important by using the six dimensions of the Worldwide Governance Indicator. The results support standard “rules of engagement” that reduce transaction costs by lowering uncertainty and facilitating the mutual trustworthiness of individual economic agents that spread equally among regions in specific countries. In addition, we interpret empirical evidence to determine that institutions also shape regional inequalities indirectly through political channels.
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