Income distribution dynamics across European regions: Re-examining the role of space

This paper is aimed at exploring the role played by space on the dynamics of regional per capita income disparities in Europe between 1980 and 2005. To do that, an analysis based on the so-called distribution dynamics approach is used as benchmark. Therefore, the external shape of the per capita income distribution and movements within it are examined using both continuous and discrete techniques. This first approach reveals that regional disparities across European regions have decreased over time and, based on the computation of a mobility index, also highlights the existence of a medium mobility degree within the distribution. Subsequently, a spatially conditioned distribution dynamics approach is developed to adequately assess the spatial dimension of the convergence process. In this new approach per capita income of each region is doubly conditioned on its per capita income and the per capita income of its neighbours, both in a previous period. Additionally, a novel mobility index on the basis of a spatial Markov chains approach is devised. The results illustrate the importance of geography in explaining regional per capita income evolution; in particular it is shown that poor regions surrounded by rich regions have a much higher probability of escaping the poverty trap than other poor regions.