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Journal ArticleDOI

Patterns of Regional Inequality in Transition Economies

01 Apr 2001-European Planning Studies (Taylor & Francis Group)-Vol. 9, Iss: 3, pp 359-383
TL;DR: In this paper, the authors examined the geographical pattern of disparities, the convergence/divergence trends that have taken place at the regional level and the relation of regional disparities to the process of transition.
Abstract: This paper provides a comparative account of important aspects of regional development in transition economies, on the basis of regional statistics available for Poland, Hungary, Romania and Bulgaria. More specifically it examines the geographical pattern of disparities, the convergence/divergence trends that have taken place at the regional level and the relation of regional disparities to the process of transition. It is found that spatial adjustments under transition favour metropolitan and western regions, especially in countries sharing common borders with the European Union (EU) and being a short distance from the European core. In addition, disparities have increased at various rates and degrees in transition countries to levels that are higher than most of the EU countries. Given that the catch-up process, which favours more often efficiency than equity policies, has a long way to go, the regional problems in these countries may take alarming, by EU standards, dimensions.

Summary (5 min read)

Introduction

  • This paper examines on a comparative basis some distinct aspects of regional development in transition economies, on the basis of regional statistics available for Poland, Hungary, Romania and Bulgaria.
  • Then, it provides a theoretical and empirical analysis of regional disparities under transition, testing the convergence / divergence hypothesis and addressing issues related to the distribution of costs and benefits of restructuring over space.
  • The authors purpose is to see whether the emerging pattern of development is going to be a spatially selective one, deteriorating further the position of lagging behind and depressed regions or -on the contrary -have a diffusing nature.
  • A review of the literature concerning regional disparities Theories of regional inequality as well as empirical evidence regarding actual trends at the national or international level have been discussed and debated in the economic literature for over three decades.

(a) The Spatial Impact of Foreign Capital

  • Openness is realized through the elimination or reduction of barriers to West-East capital and merchandise flows.
  • Central places with respect to the European economic space will attract a larger number of activities with a higher functional order, while non-central places will receive a smaller number of lower order activities (Cohen 1981 , Petrakos and Brada 1989 , CEC 1992b , CEC 1993a , Rosenbald and Pumain 1993) .
  • Openness however and economic integration with the Western European economy has an additional spatial implication that depends on the adjacent position and the proximity of a country to Western Europe.
  • For CEE countries having common borders with West Europe there are significant opportunities for transfrontier cooperation in the form of joint ventures, subcontracting, free trade areas, scientific and technological cooperation, local or regional policy coordination as well as expansion of cross-border transportation and communication infrastructure.
  • This may imply a diversion effect for foreign capital as a part of it originating from neighboring countries prefers the benefits of proximity to the benefits of the metropolitan market.

(b) The Spatial Impact of Trade

  • Besides capital flows, the resumption of international trade with Western European countries and the collapse of the CMEA relations with the other Eastern European countries and the former Soviet Union will be an important factor with serious regional implications.
  • Reduction or elimination of existing trade barriers with the West increases imports and exposes previously protected regional production bases to international competition.
  • As a result, regions that were heavily dependent on CMEA relations or military contracts, monostructure regions or regions with a weakly integrated production structure, are expected to be more sensitive and suffer directly from the openness of the economy.
  • On the other hand, regions with a diversified production base and regions that have implemented a successful land reform and reorganization of agricultural production may have greater success in adapting to the new international environment.

(c) The Spatial Impact of Macro-geographical Adjustments

  • Finally, openness and integration into the European economy has an additional macro-geographical impact that is related to the proximity of each country to the western European development centers.
  • Distant* countries will be integrated more slowly and selectively while adjacent ones will experience sooner the benefits of an eastward directed dispersion of development.
  • Because of the gradual elimination of barriers and the creation of a large European market, geographical factors such as distance, accessibility and centrality emerge as important elements of the spatial organization of activities and the slowly shaped new spatial European economic order (Peschel 1992, Rosenbald and Pumain 1993) .
  • In other words, as distance from the European center of gravity increases, so does the number of cities and regions that do not qualify as European-level strategic locations.
  • On the other hand declining monostructure, eastern and perimetric regions are more likely to experience an unfavorable net impact from openness that will further intensify their problems and make the task of restructuring even harder.

(d) The Spatial Impact of Aggregate Economic Performance

  • It has often been claimed that an inverse relation exists between and growth performance on the one hand and regional disparities on the other.
  • This, is argued, will occur because of anticipated spread effects and because growth provides the State with the financial resources to intervene and implement an active regional policy.
  • Is in variance with existing evidence at the EU level.
  • A reconciliation of these apparently contrasting empirical findings is possible if differences in the levels of development are taken into consideration.
  • In countries experiencing, however, higher levels of development, where the various parts of the economy are more closely integrated, higher growth rates may be associated with decreasing regional disparities, as more regions have the opportunity to share the benefits of economic expansion.

(e) The Spatial Impact of Structural Change

  • Finally, a last factor with an important spatial dimension is the sectoral composition of output and employment and the expected changes due to the restructuring process.
  • As the authors have already seen, the costs and benefits of transformation are not expected to be equally distributed over space.
  • In general, regions with a more diversified economic structure will experience a lower adjustment cost, while monostructure regions such as the old industrial areas that are in decline and backward regions will face serious and lasting difficulties.
  • Metropolitan areas and industrial regions will also be benefited by a sectoral shift in the composition of output that has taken place in the modem post-industrial world and is slowly being transmitted into the ECE economies.

(f) The formulation of hypotheses

  • On the basis of this analysis, the following hypotheses can be advanced with respect to the regional dimension of the transition process in CEE countries:.
  • Metropolitan regions tend to be relatively more benefited by the process of transition, their success being a function of their size and importance in the European hierarchy of central places.
  • Western regions in CEE countries sharing common borders with EU countries will experience a faster and more successful adaptation to the new economic conditions than the eastern regions.
  • In countries that do not share common borders with the EU, the previous pattern of development is more or less maintained or changed more slowly.
  • The process of transition is associated with increasing regional disparities.

(g) The Early Evidence

  • There are now available reports that transition has increased disparities, as western regions and metropolitan areas in general fare better (Downes 1996) .
  • Evidence from Esthonia shows that core concentration of foreign capital and joint ventures, the greatest number of new enterprises and the higher income per capita in recent estimates (Raagmaa 1996) .
  • Evidence from East Germany already indicates that development is highly selective and depends on the behavior of foreign capital.
  • Additional evidence comes from Poland, where in 1994 the metropolitan region of Warsaw, Krakov, Poznan and Katowice had the lowest unemployment rate.

Romania and Bulgaria

  • With the financial support of the Phare-ACE Program of the European Commission, a relatively extensive regional data base was constructed for Poland, Hungary, Romania and Bulgaria with information at NUTS III level.
  • Given that Central European countries are relatively more advanced than Southeastern European countries, this sample gives us the opportunity to study patterns of regional change in small and large countries in each group.
  • In Maps 2, 3 and 4 the authors present the density of population of Poland, Hungary, Romania and Bulgaria, measured as population per square kilometer, the regional distribution of population, as well as the average annual 1990-1995 population change at the regional level for the four countries.
  • Second, Poland and Hungary, having the smallest changes at the national level, show relatively small differentiation at the regional level, while Romania and Bulgaria, having greater population losses at the national level, experience greater differentiation at the regional level.
  • In both diagrams, the plots of Poland and Hungary have a negative slope, while the plots of Romania and Bulgaria have a positive slope.

(b) Regional Economic Indicators

  • In principle again, the greater its value, the greater is the spread of the observations and the greater the level of disparities.
  • As a result, a positive relation (b>0) of this dependent variable with the initial value y0 would imply that regions with a higher initial value of y would tend to have a higher growth performance.
  • Most of them are available for only one country, restricting in this way the range of variables that could be used for comparative analysis.

1. Cartographic analysis

  • Summing up the findings of the cartographic analysis, the authors can say that there is significant evidence now that on the one hand metropolitan regions have done better than average and on the other that western regions have done better than the eastern regions.
  • The same is not always the case for the supperior performance of the western part of these countries over the eastern part.
  • This process is clear in the case of Poland and Hungary , but not always clear in the case of Romania and Bulgaria, where perimetric regions are those that usually have an inferior performance.
  • As a result, the hypothesis for a supperior performance of the metropolitan and western regions in transition countries seems to receive significant support in countries.

2. Diagrammatic analysis

  • Figures 6, 7 and 8 present the regional differentiation of variables indirectly indicating walfare (or conssumption) levels such as cars, TV sets and telephones per 100 inhabitants for the countries that provided the relevant information.
  • In the case of cars per 100 people in Figure 6 , disparities seem to remain rather stable in Poland and increase in Hungary, while in both cases the dominance of metropolitan regions of Warsaw and Budapest seems to increase over time.
  • Clearly, this indicator of welfare enjoys a smoother regional distribution than the previous one, presumably because TV sets are considered basic goods now in the East as much as in the West.
  • The authors should note however that in Poland and Romania the metropolitan regions dominate the provision of lines with a rate that exceeds by more than 100% the national average.
  • On the contrary, in Hungary, Budapest is well behind the national average in terms of telophones per 100 people.

3. Statistical analysis

  • Are some important observations that can be made on the basis of the proceeding analysis and the information provided in the Table .
  • Table3 Coefficients of regional variation at the NUTS III level for the EU Member States in 1989.

Conclusions

  • First of all, demographic indicators such as population change do not seem to follow very closely the economic indicators.
  • In addition, in Poland and Hungary that have experienced spatial adjustments favoring more systematically the metropolitan regions, Warsaw and Budapest appear with an inferior than the national average performance when the authors consider population change.
  • Given that in some of these countries disparities are already high by EU standards and given that the catch-up process has a long way to go, the regional problem in these countries may take such dimensions that will require a more systematic, better financed and more focused regional policy.
  • In their case however these problems will be more pressing and more persistent, as distance from the European core only permits for a selective (that is unequal) pattern of integration.

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Cites background from "Patterns of Regional Inequality in ..."

  • ...Various studies have identified an important increase in the level of spatial inequality within the CEE countries during the transition period (Petrakos, 2001; Ezcurra and Pascual, 2007) and the changes seem to have mainly benefited capital cities and major urban agglomerations (Bachtler, Downes and Gorzelak, 1999; Petrakos, 2001)....

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  • ...…important increase in the level of spatial inequality within the CEE countries during the transition period (Petrakos, 2001; Ezcurra and Pascual, 2007) and the changes seem to have mainly benefited capital cities and major urban agglomerations (Bachtler, Downes and Gorzelak, 1999; Petrakos, 2001)....

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  • ...Various studies have identified an important increase in the level of spatial inequality within the CEE countries during the transition period (Petrakos, 2001; Ezcurra and Pascual, 2007) and the changes seem to have mainly benefited capital cities and major urban agglomerations (Bachtler, Downes…...

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Journal ArticleDOI
TL;DR: In this article, the authors examined the relationship between decentralization and the evolution of regional inequalities in a panel of 26 countries, 19 developed and 7 developing, for the period between 1990 and 2006.
Abstract: This article looks at the relationship between fiscal and political decentralization and the evolution of regional inequalities in a panel of 26 countries-19 developed and 7 developing-for the period between 1990 and 2006. Using an instrumental variables method, it finds that whereas for the whole sample decentralization is completely dissociated from the evolution of regional disparities, the results are highly contingent on the level of development, the existing level of territorial inequalities, and the fiscal redistributive capacity of the countries in the sample. Decentralization in high income countries has, if anything, been linked with a reduction of regional inequality. In low and medium income countries, fiscal decentralization has been associated with a significant rise in regional disparities, which the positive effects of political decentralization have been unable to compensate. Policy preferences by subnational governments for expenditure in economic affairs, education, and social protection have contributed to this trend.

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Cites background from "Patterns of Regional Inequality in ..."

  • ...The process culminated at the beginning of 2002 with the transfer of control over education and health to all those Spanish regions that did not previously control those sectors, making Spain the most decentralised state in terms of regional government expenditure in Western Europe....

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  • ...Outside the European Union this trend has been, if anything, even more marked....

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  • ...31 8.30 Greece 0.1560 0.1579 0.1581 1.22 0.13 1.35 Portugal 0.2313 0.2355 1.82 European Union 0.2471 0.2749 11.25 a Data for Europe: EU 1980 ± 99; Greece 1981 ± 99; France 1982 ± 99....

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  • ...For the European Union as a whole, the period between 1990 and 2000 saw regional inequalities increase by 11.25%....

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  • ...If we consider the populations of the countries with some degree of devolution, 87% of the total European Union is covered....

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References
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Journal ArticleDOI
TL;DR: This paper developed a simple model that shows how a country can endogenously become differentiated into an industrialized core and an agricultural periphery, in which manufacturing firms tend to locate in the region with larger demand, but the location of demand itself depends on the distribution of manufacturing.
Abstract: This paper develops a simple model that shows how a country can endogenously become differentiated into an industrialized "core" and an agricultural "periphery." In order to realize scale economies while minimizing transport costs, manufacturing firms tend to locate in the region with larger demand, but the location of demand itself depends on the distribution of manufacturing. Emergence of a core-periphery pattern depends on transportation costs, economies of scale, and the share of manufacturing in national income. The study of economic geography-of the location of factors of production in space-occupies a relatively small part of standard economic analysis. International trade theory, in particular, conventionally treats nations as dimensionless points (and frequently assumes zero transportation costs between countries as well). Admittedly, models descended from von Thunen (1826) play an important role in urban studies, while Hotelling-type models of locational competition get a reasonable degree of attention in industrial organization. On the whole, however, it seems fair to say that the study of economic geography plays at best a marginal role in economic theory. On the face of it, this neglect is surprising. The facts of economic geography are surely among the most striking features of real-world economies, at least to laymen. For example, one of the most remarkable things about the United States is that in a generally sparsely populated country, much of whose land is fertile, the bulk of the population resides in a few clusters of metropolitan areas; a quarter of the inhabitants are crowded into a not especially inviting section of the East Coast. It has often been noted that nighttime satellite

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01 Jan 1991
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Abstract: A key economic issue is whether poor countries or regions tend to grow faster than rich ones: are there automatic forces that lead to convergence over time in the levels of per capita income and product? The authors use the neoclassical growth model as a framework to study convergence across the forty-eight contiguous U.S. states. They exploit data on personal income since 1840 and on gross state product since 1963. The U.S. states provide clear evidence of convergence, but the findings can be reconciled quantitatively with the neoclassical model only if diminishing returns to capital set in very slowly. Copyright 1992 by University of Chicago Press.(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)

3,139 citations


"Patterns of Regional Inequality in ..." refers methods in this paper

  • ...Following the work of Barro and Sala-I-Martin (1991, 1992), which attempts to evaluate the neo-classical proposition of convergence in the levels of development among different countries....

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  • ...…mean value · The ratio of maximum to minimum regional value (max/min) · The b -convergence coef cient estimated from an econometric model in the tradition of Barro and Sala-I-Martin (1991) · The b -density coef cient estimated from the regression of various economic indicators on regional…...

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Additional excerpts

  • ...Following the work of Barro and Sala-I-Martin (1991, 1992), which attempts to evaluate the neo-classical proposition of convergence in the levels of development among different countries....

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TL;DR: Maddison's 1870-1979 data are analyzed, showing the historically unprecedented growth in productivity, gross domestic product per capita and exports and the remarkable convergence of productivities of industrialized market economies, with convergence apparently shared by planned economies but not less developed countries.
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Book
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