Bridging the economic divide within nations: A scorecard on the performance of regional development policies in reducing regional income disparities

Regional inequalities represent an ever present development challenge in most countries especially those with large geographic areas under their jurisdictions. Globalization heightens these challenges as it places a premium on skills. With globalization skills rather than the resource base of regions determine their competitiveness. Skilled workers gain at the expense of unskilled ones. As typically rich regions also have better educated and better skilled labor, the gulf between rich and poor regions widens. Large regional disparities represent serious threats in federal states as the inability of the state to deal with such inequities creates potential for disunity and, in extreme cases, for disintegration. While the policy challenges in reducing regional disparities are large, federal flexibility in the choice of instruments is curtailed by the division of powers in a federation. Central governments in unitary states are, on the other hand, relatively unconstrained in their choice of appropriate policies and instruments. Under these circumstances, there is a presumption in development economics that a decentralized fiscal constitution would lead to ever widening regional inequalities. This paper provides an empirical test of this hypothesis. The following conclusions emerge from this analysis. Regional development policies have failed in almost all countriesfederal and unitary alike. Of the ten countries with high or substantial degree of regional income inequalities, only one country (Thailand) has experienced convergence in regional incomes. Federal countries,