Income catch-up spurs regional inequality

Ireland may have outperformed the poorer EU states in catching up with average EU incomes, but did so at the price of widening internal regional inequality faster than all of them, a new report finds.

The report, entitled "Real Convergence and Catching Up in the EU" in EU Economy 2000 Review, published yesterday by the European Commission, provides strong vindication for the decisions to regionalise the State for EU structural funding, and to treat the Border, Midland and Western (BMW), and the Southern and Eastern (SE) regions differently in the National Development Plan.

Per capita income in the BMW area rose from 59.8 per cent to 74.3 per cent of the EU average during 1991-97, but declined significantly as a share of per capita national income in the same period (from 78.7 per cent to 71.4 per cent). The result was a growing gulf between the two regions as the SE absorbed substantially more than its fair share of the benefits of the State's spectacular growth.

The SE region in the same period saw its per capita income grow from 82 per cent of the EU average to 114.7 per cent, while its share of per capita national income increased three percentage points to 110.3 per cent.

The sustained high growth in the economy in the years since is likely to have exacerbated such divergences.

The study found a similar, though more muted, tendency in Spain, with the Madrid and Catalan regions benefiting disproportionately from growth. It also suggests a possible correlation between low growth and the continuation of regional disparities, pointing to the Italian and German experience. The report suggests that a growth in regional disparities is usual in "catching-up" economies, particularly in the early stages of the process. But that tendency, the study says, should then go into reverse.

Should the Irish have regionalised earlier then? Apparently not. The report suggests that there is a significant price to pay overall if states try to prioritise both national and regional catch-up simultaneously.

A study in Spain states: "If public investment in 1981-90 had been distributed solely according to an efficiency criterion, national GDP would have been 1.58 per cent higher and regional disparities 18.29 per cent higher. If, on the other hand, investment had been distributed solely according to an equity criterion, GDP would have been 1.62 per cent lower, and disparities 13.54 per cent lower."

The report says the tension between the two strategic objectives, convergence with other EU states and internal equity, is likely to be an important consideration not only for the EU's current poorer member-states but also for the acceding states from Central Europe.