The reduction of regional disparities in output and income has been a concern for the European Community since its inception, and the Single European Act re-emphasized the importance of regional policy after the accessions of Spain, Greece and Portugal. Recent theoretical models have also provided justifications for regional policy in terms of efficiency as well as equity. `New growth' models assume increasing returns in production or externalities arising from human capital accumulation, which allow regional output per head to diverge, while models of market integration emphasize the contribution of agglomeration to centripetal forces and growth disparities. The 1985 enlargement to Spain and Portugal and the implementation of the single-market programme amounted to a change in trade policy regime. Such a liberalization of trade and factor movements should accelerate convergence of output according to the neoclassical paradigm but need not do so in the presence of increasing returns or agglomeration economies, even if these enhance average growth.

In Discussion Paper No. 914, Programme Director Damien Neven and Claudine Gouyette use data on European regions' per capita output over the 1980s to calculate `convergence' according to three different criteria. These all indicate that the South European regions' initial catch-up gave way to stagnation, at best, in the late 1980s, while the North European regions initially stagnated or diverged but converged strongly later on. This is consistent with the North's better adjustment to the mid-1980s change in policy regime and it lends support to the view that trade liberalization may exacerbate disparities. Neven and Gouyette also find that this North-South distinction appears more important to regional growth patterns than the `centre-and-periphery' framework used in most studies of agglomeration economies. Preliminary evidence on migration indicates that the Southern regions' populations respond more slowly to differences in wages and unemployment, which may in part account for their lack of convergence since 1985.

Regional Convergence in the European Community
Damien J Neven and Claudine Gouyette

Discussion Paper No. 914, February 1994 (IM/IT)