Typology of Theoretical and Empirical Approaches on Regional Disparities

Regional income inequality has been the subject of academic debates since 1950s. However, theoretical bases on regional disparities provide conflicting views on relations between inequality and national growth. Some researchers believe that in the first stage of national economic growth, regional inequality is a natural phenomenon that stems from lack of coordination between the spatial system (regional economic growth) and the national system (national economic growth). Over a period of time, however, with increasing movements of production factors (labor and capital) among regions, regional inequality will be minimized or possibly eliminated. While, some other researchers like Myrdal and Hirschman claim that spatial movement of production factors increases regional inequality. They believe that only government intervention can reduce gaps among regions in the process of development. Amos Terrassi and Lessman believe that regional inequality follows a pattern of increase-decrease-increase. The cause may be a fundamental and systematic change in economic activities, such as increasing in suburbanization or moving to a service-based economy. Also there is a group of thinkers who claim that scale economies increase regional disparities. Thus, there is a positive correlation between regional inequality and economic growth. Therefore, literature review on regional disparities shows that theories and empirical studies have an unclear message about the evolution of regional disparities over time. The purpose of this paper is presenting a typology of theoretical and empirical studies on regional disparities. According to investigations, theoretical and experimental approaches toward regional disparities refer to two economic theories: “neoclassical economic growth” and “new economic geography”. Neoclassical economic growth theory believes that regional disparities will decrease over time, while Krugman belonging to new economic geography theory claims that regional inequality will increase. We have classified regional inequality approaches into three categories based on two economic theories: 1) spatial equilibrium 2) spatial disequilibrium and 3) in-between approaches. Spatial equilibrium theorists refer to neoclassical theory. These theorists show that regional disparities will reduce over time and there is a negative correlation between national income growth and regional disparities. Spatial disequilibrium theorists refer to new economic geography theory. These theorists are divided into three groups. The first group who presented their studies before Krugman's theory believe that capital and labor move from less desirable area into growing areas. The second group believes that regional inequality will increase after completing Inverted-U model (which proposed by Williamson). The third group claims that there is a positive correlation between economic growth and regional inequality because of scale economies. Recent studies in the field of regional disparities provide a view that has been proposed as an “in-between approach”. This approach believes that relation between regional disparities and economic growth depends on development level or scale of regions. In some areas the relation between growth and inequality is positive, while it is negative in other areas. This typology shows that we are not sure about pattern of regional disparities evolution. However, it seems that these days, in-between approach is more reliable.