Regional poverty disparity and economic performance in Central and Eastern Europe and Eurasia

Abstract

While most of the inequality literature focuses on income inequalities by Gini coefficient, this article develops an alternative index that measures the extent of poverty disparities across geographical regions. In contrast to trends in income inequalities, there is little evidence that regional poverty disparities have peaked and are falling in Central and Eastern Europe and Eurasia. Using panel data for the transition countries, we find that high levels of regional poverty disparity have a positive impact on macroeconomic performance. Further evidence suggests this result may be driven by the positive effect of disparities on both saving and the pace of economic reforms. However, it appears that disparities are beneficial to progress on both economic and democratic reforms only for countries with per capita income levels above USD3000.