Income Convergence Research Articles

A Visual Analytics System for Space–Time Dynamics of Regional Income Distributions Utilizing Animated Flow Maps and Rank‐based Markov Chains

Regional income convergence and divergence has been an active field of research for more than 20 years, and research papers in this field are still being produced at a prodigious rate. Despite their importance for the study of dynamics of income distribution, interactive visualization tools revealing spatiotemporal dimensions of the income data have been sparsely developed. This study introduces a visual analytics system for the space–time analysis of income dynamics. We use state‐level US income data from 1929 to 2009 to demonstrate the visual analytics system and its utility for exploring similar data. The system consists of two modules, visualization and analytics. The visualization module, a Web‐based front‐end called Rank‐Path Visualizer (RPV), draws inspiration from the cartographic technique of flow mapping, originally developed by Tobler and embodied in his canonical Flow Mapper application.

Technological convergence across European regions

Research background: Given the pivotal role of innovations and technological progress in shaping the economic development of regions and the crucial significance of spatial dimension of innovation processes at the regional level, the assessment of technological convergence in the regional scope becomes an essential research problem. Technological convergence could be identified on the basis of the analysis of total factor productivity (TFP). The significance of the technological convergence analysis results from the fact that income convergence can be both accelerated or impeded, depending on whether the initial differences in the level of technology (TFP) decrease or increase over time.
 Purpose of the article: The aim of the paper is twofold. Firstly, we attempt to develop a theoretical framework for the analysis of the technological convergence. Secondly, we investigate the technological convergence (on the basis of the TFP analysis) across European regions.
 Methods: During the first stage of the research, we employ the multiplicatively-complete Färe-Primont index to calculate TFP. The second stage of the study includes estimation of spatial panel models applied to assess the level of technological convergence across European regions. The research sample consists of 273 NUTS 2 European Union (EU) regions over the period 2010? 2016.
 Findings & Value added: The results of the study confirm a clear division of Europe into the Western European regions with high TFP values and the Eastern European regions with low TFP level. The research also shows that in the Eastern European regions the process of reducing the differences in the productivity levels is faster than in Western European regions. Since the issue of technological convergence is still not sufficiently explored in the relevant literature our paper attempts to fill a cognitive and methodological gap in the investigation of the technological convergence in the European regional space.

Review of the World Economic Outlook

The paper presents a critical review of the World Economic Outlook, the flagship report of the International Monetary Fund (IMF), launched in April 2018. After summarizing the global outlook depicted in chapter 1, we focus on the three analytical chapters that dig into the determinants of long-term economic growth. Although the report recognizes the role of manufacturing in the dynamics of productivity, employment and income distribution stressed by the heterodox growth theory, it concludes that services can offer considerable scope for productivity gains, contributing to the convergence of income per worker across countries. In face of this diagnostic, the report argues that neither subsidize manufacturing nor step back on trade liberalization are the best policies responses to support equitable growth. Hence, once more, the IMF embraced the heterodox perspective only partially.

Income divergence and global connectivity of U.S. urban regions

After a century of inter-regional income convergence, average incomes have been diverging between U.S. cities since the 1980s, calling for new policy agendas. We argue that policy research should move beyond its current focus on the effects of inter-city divergence from technological change, migration, and trade, to include the effect of outward foreign-direct investments (OFDIs). This paper suggests that OFDIs have contributed to income divergence across U.S. cities. We argue that OFDIs can positively contribute to average income levels in investing (home) cities through labor, knowledge, multiplier and trade effects – a relationship that has not been systematically investigated in prior research. It is suggested that regional income levels and OFDIs are subject to a virtuous co-evolutionary process for high-income cities while having weaker effects for lower-income cities. This is tested with a combination of fixed-effects panel regressions and quantile regressions, before and after the 2008/2009 financial crisis. Our key finding is that, while OFDIs have a positive effect on regional income levels in the post-crisis period, their effect is largest for cities with incomes around the 60th to 80th percentiles of the income distribution. This suggests that the benefits of OFDIs primarily accrue to already successful city-regions, allowing them to further their pre-existing lead.

Trade, governance and income convergence in the European Union: Evidence on the “theory of relative backwardness”

At the core of the formation of the European Union (EU) in 1993 was the economic goal to create a European Common Market to ensure freer trade and perhaps to create an egalitarian Europe. The post-1993 period saw the biggest enlargement of the EU to date from a meagre 3 member countries (Benelux) at the dawn of its creation to now 28 member countries, imposing a unique and dominating feature in terms of its range and size in the world economic milieu. Obviously, the cementing force behind such integrative process was an idea to create a more economically powerful and politically vibrant economic entity, which can compete against the mighty United States' economy. What motivates the backward region of the EU to join this strategic move? Undoubtedly, it was sheer hope and expectation to catch-up the economically more powerful nations of the Union by deriving benefits from the integration. There are proliferation of studies showing that convergence indeed had happened in the EU. Our study makes a humble attempt to shed light on the role of trade (both intra–EU and EU versus the world) and government expenditure in explaining per capita income convergence in the EU during the period of 1995–2017. As opposed to the standard neo classical approach, we have adopted the Theil inequality analysis in a panel data framework, which provides us with a much richer analytical framework to focus on the underlying factors determining the per capita income convergence in an open economy. The major finding of this paper is that policy intervention in the form of trade openness and government expenditure did contribute to per capita income convergence in the EU during the period of our study. Moreover, we are able to show that trade with the world and government expenditure enabled the relatively lower income countries to increase their per capita income to a greater extent in comparison to the relatively higher income countries, which eventually help in narrowing down the gap in per capita income across the countries of the EU. Additionally, we found that occasional shocks such as financial crisis could not reverse the convergence process.

Economic and Social Balance of 15 Years of Eastern Enlargement

The Eastern EU enlargement (2004, 2007, 2013) is still one of the success stories of the EU (and unprecedented in the world), but at the same time it is controversial and is perceived as controversial. One of the core problems has been its unbalanced character: the whole process had a clear `Single Market` focus and the values of a `Social Europe` were of secondary importance. Based on a neofunctionalist approach the paper discusses the integration of the new member states from the point of view of economic and income convergence. Along with a literature review, data on wages, productivity and output will be analysed to demonstrate that upward convergence of the poorer new member states towards the EU average had been stalled in wake of the 2009 crisis. The resulting cleavages put the core hypothesis of the neofunctionalist approach - that EU integration has a `direction` in terms of an upwards convergence - into question.

India in the Rise of Britain and Europe: A Contribution to the Convergence and Great Divergence Debates

This article discusses the role of the British control of India in the rise of Britain and Europe as well as in the convergence in incomes within the Atlantic economy in the late nineteenth century. Britain was at the apex of the world economy throughout most of the nineteenth century. The article argues that the emergence of Britain as the apex economic and political power depended on her control over India. This control of India then enabled Britain to pursue a set of policies that were of critical importance, both for the convergence in incomes within the Atlantic economy and the rise of Europe. The thesis advanced here can be viewed, depending on one’s prior position, as being either complementary to or alternative to the views of many of the protagonists of the divergence debate in the literature. JEL: N10, N13, N15, N70, O4

Wisdom of Malaysia’s Guided Economic Globalization in the Milieu of Today’s Capitalist Globalization

Capitalist globalization is a project of market dogmatism founded on the Darwinist social philosophy of ‘survival of the fittest’. In the political economy of the world with unequal nations and imperfect competition, it is a suspect of deceptive game for the developing countries. This paper is an attempt to analyze the wisdom of Malaysia’s guided economic globalization strategy using the technique of log-linear pooled ordinary least square regression and related macroeconomic time series data for the period 1982-2016. The empirical results suggest that Malaysia’s guided globalization strategy has been found successful in achieving most of its national macroeconomic goals. But in terms of international economic competitiveness the success has been only modest, its per capita income ratios with its two most important trading and development partners - USA and Japan - are found decreasing steadily having a catching up phenomenon along the path of income convergence. However, its per capita income gaps with them in absolute term are found still large and widening to suggest that developing countries must pursue globalization very cautiously and selectively.

Endogenous Technical Change and Convergence of Per Capita Income: New Theory and Evidence

The formal theoretical model in this study enables segmentation of countries with respect to three factors, namely, the extent to which income inequality is adopted as a policy variable; the extent to which there is focus on generation of either of `incremental', or `disruptive' innovations; and the extent to which entrepreneurship that is not predicated on innovation is not encouraged. The resulting endogenous segmentation is shown to be more robust than segmentation that is predicated on countries that are covered, or not, in the database of the Organization for Economic Cooperation and Development (OECD). Using the resulting segmentation, empirical findings provide evidence for existence of country-specific steady states for sample countries. Convergence is a general equilibrium outcome, not because of accumulation of optimal amounts of physical capital, but because upon arrival at steady state, attempts at maintenance of preceding growth rates for Per Capita Income induce deterioration of a country's ranking with respect to each of Per Capita Income, and income inequality. Countries then, acting rationally transition to lower growth rates, resulting in convergence of country growth rates. Given sub-optimality of outcomes must arise endogenously from transition beyond steady state within any general equilibrium model, there is arrival at empirical validation for existence of country-specific steady states. Consistent with existence of steady states for growth rates of Per Capita Income, arrival at steady state is shown to be associated with lowest realizations of supplies of new manufacturing innovations.

The effect of migration policy on growth, structural change, and regional inequality in China

Between 2000 and 2015, China’s aggregate income quadrupled, its provincial income inequality fell by a third, and its share of employment in agriculture fell by a half. Internal migration is central to this transformation, with the number of internal migrant workers reaching 300 million by 2015. Combining rich data on migration with a spatial general equilibrium model of China’s economy, we quantify the size and the impact of internal migration cost reductions in China between 2000 and 2015. During the 15-year period, China’s internal migration costs fell by forty-five percent. In addition to contributing substantially to growth, these migration cost changes account for the majority of the reallocation of workers out of agriculture and the drop in regional inequality. We compare the effect of migration policy changes with other important economic changes, including changes in trade costs, capital market distortions, average cost of capital, and productivity. While each contributes meaningfully to growth, migration policy changes are central to China’s structural change and regional income convergence. We also find that the recent slow-down in aggregate economic growth between 2010 and 2015 is associated with smaller reduction in inter-provincial migration costs and a larger role of capital accumulation.

Republic of Moldova

This paper presents 2019 Article IV Consultation with the Republic of Moldova and its Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements. Moldova’s economic growth remained solid in the first three quarters of 2019, with output expanding nearly 5 percent, supported by strong domestic demand. The three-year program has been broadly successful in achieving its objectives. Comprehensive reforms have rehabilitated the banking system and strengthened financial sector governance, entrenching macrofinancial stability. Prudent and well-coordinated policies are needed to safeguard the progress achieved. Decisive governance and institutional reforms are necessary for faster, sustainable, and inclusive growth. Safeguarding central bank independence is a priority. The inflation-targeting (IT) regime remains appropriate, but additional efforts are needed to improve policy credibility, promote exchange rate flexibility, and disincentivize foreign currency intermediation. Widespread governance and institutional vulnerabilities are major impediments to accelerating income convergence. Addressing these could have significant growth dividends through faster capital accumulation, reduced labor and human capital headwinds from emigration, and higher productivity.

What do we know about poverty in North Korea?

Reliable quantitative information on the North Korean economy is extremely scarce. In particular, reliable income per capita and poverty figures for the country are not available. In this contribution, we provide for the first time estimates of absolute poverty rates in North Korean subnational regions based on the combination of innovative remote-sensed night-time light intensity data (monthly information for built areas) with estimated income distributions. Our results, which are robust to the use of different methods to approximate the income distribution in the country, indicate that the share of persons living in extreme poverty in North Korea may be larger than previously thought. We estimate a poverty rate for the country of around 60% in 2018 and a high volatility in the dynamics of income at the national level in North Korea for the period 2012–2018. Income per capita estimates tend to decline significantly from 2012 to 2015 and present a recovery since 2016. The subnational estimates of income and poverty reveal a change in relative dynamics since the second half of the 2012–2018 period. The first part of the period is dominated by divergent dynamics in income across regions, while the second half reveals convergence in regional income.

Testing the impact of financial inclusion on income convergence: Empirical evidence from Nigeria

AbstractFinancial inclusion, as a key pillar for inclusive development, has long been considered as an important instrument for reducing poverty and income inequality. However, the income convergence effect of financial inclusion remains only partially explored. Using longitudinal data covering three survey waves on Nigerian households, this study explores the potential of financial inclusion as an instrument for reducing income disparity. After controlling for the endogeneity issues, the results of instrumental variable linear and quantile regressions consistently show a strong nexus between financial inclusion and per capita income. This positive effect is experienced by all households regardless of income distribution. The decomposition results reveal that ab initio, financial inclusion resulted in income divergence leading to widening inequality across the households with various income distributions. However, the income convergence started from the middle to the higher income household categories, with the lowest income lagging behind in the second wave. The lowest income households eventually converged in the data of the third wave. In this sense, it can be argued that financial inclusion could play an important role in the reduction of income inequality.

Economic globalization and regional income convergence: Evidence from Latin America and the Caribbean

•Addressing the effect of economic interaction on regional output convergence as a separate phenomenon different from any political and institutional arrangements.•Testing overall convergence and determining convergence clubs in the region of Latin America and the Caribbean by using Sigma and Log t convergence tests.•Investigating the specific effects of globalizing flows of trade, capital and technology for both the short run and the long run by using the augmented ARDL model. Trying the first attempt to investigate the convergent effects of globalizing flows at both inter- and intra-regional levels. Trying the first attempt to differentiate the convergent effects of imports from those of exports.

Brazilian Perspectives: Society, Stratification and Income Distribution

This paper aims to present a general evaluation on the inequality, income distribution and social mobility in Brazil between 2002 and 2014, under the governments of the Workers' Party. In this way, from the methodological point view, it is based on both a review of the literature about that subject and an investigation of the primary sources of the Brazilian social policies. Among the results found out, it can be highlighting the following sample: 1) historically, Brazilian society has been marked by inequality in several ways, and this is probably a consequence of his colonial legacy; 2) In the period between 2002 and 2014, Brazilian social inequality declined; 3) the decline of inequality can be explained by income growth, higher schooling levels and labor formalization, but the targeted social program, Bolsa Família, also contributed to income convergence; 4) Brazil slashed poverty from 25 percent of the population in 2004 to 8.5 percent in 2014, and extreme poverty declined from 12 to 4 percent over the same period. Conclusively, it’s affirmed, for example, that the reduction of inequality in Brazil was the result of firm political decisions, as well as of the quality in management and implementation of the public policies by the technical teams.

Catching-up in the global factory: Analysis and policy implications

MNEs shape the location of activities in the world economy, linking diverse regions in what has been called the global factory. This study portrays the evolution of incomes and employment in the global factory using a quantitative input–output approach. We find emerging economies forging ahead relative to advanced economies in income derived from fabrication activities, handling the physical transformation process of goods. In contrast, convergence in income derived from knowledge-intensive activities carried out in pre- and post-fabrication stages is much slower. We discuss possible barriers to catching-up and policy implications for emerging economies in developing innovation capabilities, stressing the pivotal role of MNEs.

Regional income convergence in an emerging Asian economy: empirical evidence from Vietnam

ABSTRACT Vietnam as an emerging economy has experienced strong economic growth since 1990 with an average annual income per capita growth of 8.8 per cent for 1990–2018. The country has around sixty provinces, and applying cross-section and time-series tests of convergence the analysis shows that approximately half of these have experienced a process of convergence towards the income level of Ho Chi Minh City (HCMC). Still, cities like HCMC and Ha Noi have a per capita income level several times higher than the lowest income provinces. The analysis also finds that provinces being a neighbour to the major city areas – and having more manufacturing and service industry activities than agriculture – are more likely to experience a process of economic convergence towards HCMC. This is also revealing that provinces having an infrastructure that can attract and adopt investments – being foreign investments or government funded activities – appear more likely to catch up with the high-income areas.

Republic of North Macedonia

Growth is solid, with strong domestic demand and resilient exports despite the slowdown in global trade. The government has undertaken important reforms in past years to strengthen the economy and support the country’s EU candidacy. To bolster the economy’s resilience to shocks and speed up income convergence, the authorities should rebuild fiscal policy space, re-orient public spending toward investment and continue improving institutions and government efficiency.

Median Relative Partial Income Polarization Indices: Investigating Economic Polarization in Poland During the Years 2005\u20132015

In recent years, more and more attention has been focused on the effects of economic growth and inequality changes on income polarization, as well as on the changes in the middle income class fraction. A significant part of the literature that deals with these issues is focused on polarization indices. However, the polarization indices proposed by researchers do not allow for an assessment of impact of the income distribution changes on the disappearance of the middle income class. Moreover, the general income polarization indices do not allow for assessment of polarization within the distinguished income classes. This study proposes a class of median relative polarization partial indices, which allows for a comprehensive assessment of the median relative polarization over time, within the distinguished income classes, as well as the impact of income distribution changes (its polarization or convergence) on the change of the middle income class fraction (its disappearance or increase). Using Social Diagnosis panel data (a study carried out by the Social Monitoring Council), the proposed new tool has been used to verify the hypothesis of whether changes in the household income distribution in Poland during the years 2005–2015 have led to income polarization within the three distinguished income groups—lower, middle and upper income classes. Empirical analysis shows that despite the lack of overall polarization of incomes in the household population, there was a convergence of incomes in the upper and lower income classes and polarization of incomes within the middle income class. It implies that the income distribution has not been petrified, and as on average individuals in the lower and upper income classes tend to reduce the distance to the median income, whereas the members of the middle income class tend to be pushed out of the middle class. Moreover, the flows of households into the middle income class were higher than the outflows from this class, resulting in economic convergence, i.e. changes in income distribution leading to an increase of the middle income class fraction.

Rural depopulation and income convergence

<p>Panel data models are estimated to highlight the income-gap as a driver of individual decisions to migrate. This procedure allows to testing the hypothesis that the per capita income-gap of rural spaces along with the employment rate and aging explain the fall in the population of rural villages and the concentration of population in functional urban areas (FUA). First, using panel data models, the links between rural depopulation and the income-gap are estimated with data at the municipal level. Second, the effects of the European Structural and Investment Funds (ESIF) on the convergence of income levels for rural inhabitants are evaluated.</p>