The evolution of income disparities among the regions of the European Union

Per capita income disparities, particularly evident between developed and l ess developed countries, are of noticeable importance even amongst the regi ons of the European Union and do not seem to reduce their extent following the predictions of the neoclassical model, despite the high degree of openn ess typical of regional economies. The empirical analysis of convergence am ong regions confronts two problems that, if not correctly addressed, can re duce the validity of the results. The first concerns the definition of regi on. Very often, in fact, empirical analyses within a regional context make use of the available data for administrative regions without adequately con sidering the consequent results of this choice. The second problem is relat ed to the nature of the growth process. The methodology followed by the vas t majority of researchers, i.e., cross-sectional regression, is based on th e hypothesis of a growth process characterised by a smooth path towards a s teady-state. As some authors have demonstrated empirically that this underl ying hypothesis is invalid, it is interesting to develop an alternative met hodology the results of which are not subject to this restrictive hypothesi s on the growth process. The methodology suggested in this study focuses di rectly on the cross-sectional distribution of per capita income, modelling the growth process as a time homogeneous Markov chain. The methodology is t hen applied to per capita income data for 122 EU functional regions over th e period 1979-1990. (C) 1999 Elsevier Science B.V. All rights reserved.