Regional income disparities: convergence or divergence within the EU-25?

The paper stresses regional income disparities, growth and convergence in European Union (EU-25) countries during the EU pre-enlargement period (1995-2002) distinguishing also the two subgroups to the EU: the EU-15 and the EU-10 (the new member states since May 2004). We explore sigma- and beta-convergence at a highly disaggregated regional level using spatial and non-spatial techniques. Furthermore, we measure the level of income inequality and decompose it by means of the Theil index into between country and within country contributions to overall income inequality. The results show that the speed of convergence among regions in the EU is painfully slow. Furthermore, there is a distinct difference between convergence processes at the regional and at the national level. Especially in the EU-10, the catching-up at the national scale seems to be driven by some growth centers, mainly capital regions. This causes tendencies to divergence at the regional scale. Tests for spatial autocorrelation reveal that regions are strongly affected in their development by neighbouring regions.