## Widening Gaps: Regional Inequality within Advanced Economies _IMF Blog, October 9, 2019_ ## Source details **Canonical URL:** [Widening Gaps: Regional Inequality within Advanced Economies](https://www.imf.org/en/blogs/articles/2019/10/09/widening-gaps-regional-inequality-within-advanced-economies) ## Other formats - [Markdown version](/en/blogs/articles/2019/10/09/widening-gaps-regional-inequality-within-advanced-economies/index.md) - [Structured JSON version](/en/blogs/articles/2019/10/09/widening-gaps-regional-inequality-within-advanced-economies/index.json) - [Bundle manifest](/en/blogs/articles/2019/10/09/widening-gaps-regional-inequality-within-advanced-economies/bundle-manifest.json) ## Bibliographic details - Authors: John Bluedorn, Weicheng Lian, Natalija Novta, Yannick Timmer - Published: October 9, 2019 - DOI: https://doi.org/10.1016/B978-0-444-53538-2.00002-2 --- ### Overview - Differences in economic performance between regions within countries can be large and sometimes even larger than between countries. - Example comparisons in the source: - Average real GDP per person in the United States is about 90 percent higher than in Slovakia. - Within the United States, per capita GDP in the state of New York is 100 percent higher than in Mississippi. - Large and persistent regional gaps can undermine inclusive growth, fuel discontent, and erode social trust and cohesion. - Chapter 2 of the World Economic Outlook examines gaps between better and worse performing regions in advanced economies and analyzes regional labor market responses to trade and technology shocks. ### Measuring regional differences - 90/10 ratio: real GDP per capita of the region at the 90th percentile divided by that of the region at the 10th percentile within a country. - Italy: 90/10 ratio is about 2 (Trento about twice as large as Sicily). - Japan: 90/10 ratio is 1.35. - Advanced economies (including the United States): 90/10 ratio is now at about 1.7, indicating the 90th percentile region is, on average, 70 percent richer than the 10th percentile region. - Note: incomes tend to vary much more within regions than between them. - Rising disparities imply poorer regions in advanced economies are no longer catching up to the rich as fast as they used to. ### Definition and characteristics of lagging regions - Classification of a lagging region: - Initial real GDP per capita in 2000 is below the country’s median region, and - The region’s average growth over the period 2000–16 is below the country’s average growth over the same period. - Typical unfavorable attributes of lagging regions: - Worse health outcomes: higher infant mortality and lower life expectancy. - Smaller shares of college-educated workers. - Smaller shares of people in their prime (considered to be 25 to 54 years old). - Higher unemployment rates. - Smaller share of people participating in the labor force. - Labor productivity gaps (output per worker) in lagging regions across sectors: - About 5 percent less in public services. - Around 15 percent less in manufacturing industries and finance and professional services. - Sectoral specialization: - Poorer regions tend to specialize in agriculture and manufacturing rather than high productivity service sectors such as information technology and communications and finance. - Climate change risk: - Rising temperatures may lower labor productivity in agriculture and heat-exposed industries, often affecting lagging regions more. ### Responses to shocks (trade and technology) - Trade shocks (increases in import competition in external markets): - Do not have significant effects on regional unemployment on average, both overall and for lagging regions specifically. - Tend to reduce labor force participation after one year, but this effect quickly fades. - Technology shocks (proxied by a decline in the cost of machinery and equipment): - A negative technology shock raises unemployment in all regions that are more vulnerable to automation, with lagging regions particularly hurt. - Automation-prone lagging regions experience a statistically significant drop in people leaving after the shock, suggesting workers in these regions find it harder to move out in search of better employment. - Labour’s adjustment to technology shocks in lagging regions is hampered. ### Policy implications and recommendations - Improve market functioning: - Reduce distortions and encourage more open and flexible markets to minimize unemployment increases from shocks and improve reallocation of workers and capital. - Labor market policies: - Retrain the displaced and speed re-employment, with particular focus on lagging regions. - Boost educational and training quality to adapt to the changing world of work; this would disproportionately benefit lagging regions where unemployment is higher. - Product market openness: - Lower barriers to entry and greater trade openness can facilitate movement of capital to regions and firms where returns are higher. - Fiscal and place-based policies: - Target fiscal support to lagging regions and implement programs to ease worker relocation and provide buffers against regional shocks. - Place-based policies must be carefully designed to help rather than hinder adjustment. *Widening Gaps: Regional Inequality within Advanced Economies — John Bluedorn, Weicheng Lian, Natalija Novta, Yannick Timmer; October 9, 2019.* --- ## References - [inclusive growth](https://www.imf.org/external/pubs/ft/ar/2018/eng/spotlight/making-growth-inclusive/) - [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2019/10/01/world-economic-outlook-october-2019) - [https://www.imf.org/wp-content/uploads/2019/10/eng-sept-26-weo-ch2-1.png](https://www.imf.org/wp-content/uploads/2019/10/eng-sept-26-weo-ch2-1.png) - [https://www.imf.org/wp-content/uploads/2019/10/eng-sept-26-weoch2-2.png](https://www.imf.org/wp-content/uploads/2019/10/eng-sept-26-weoch2-2.png) - [https://www.imf.org/wp-content/uploads/2019/10/eng-sept-26-weoch2-3.png](https://www.imf.org/wp-content/uploads/2019/10/eng-sept-26-weoch2-3.png) _Source: https://www.imf.org/en/blogs/articles/2019/10/09/widening-gaps-regional-inequality-within-advanced-economies_