Does government quality affect spatial inequality?
Figure 1 demonstrates countries with better quality of government- measured based on the World Bank’s Worldwide Governance Indicators – register lower degrees of spatial inequality. This relationship is confirmed by the econometric analysis, which indicates that the bond between government quality and regional inequality is robust to the inclusion of additional explanatory variables which may be correlated with regional disparities and government quality, such as for example GDP per capita, the amount of trade openness, country and government size, or ethnolinguistic diversity. Furthermore, an instrumental variable approach shows a causal effect running from quality of government to territorial inequality . Specifically, our results provide strong support for the hypothesis that government quality plays a part in the reduced amount of spatial disparities, which underlines the need for institutional factors in the processes of regional growth.
The results survive several robustness checks. First, our findings aren’t driven by a particular band of countries or a lower number of influential observations. Second, the negative link observed between governance and regional disparities holds when alternative measures of spatial inequality and government quality are used.
Figure 1 . Spatial inequality and government quality, 1996-2006.
Spatial inequality poses significant economic and political challenges for the governments of several countries, mainly in the developing world where regional disparities are considerably greater than in the developed world. With regards to this, the results of our analysis raise potentially important policy implications. Specifically, our findings claim that improving the caliber of government may donate to reduce regional disparities. Therefore government quality isn’t only important by itself or as a determinant of growth and economic development, but also in an effort to guarantee greater territorial cohesion. Consequently, policy makers worried about regional disparities should focus on how authority is exercised, without overlooking the need for institutional quality and government performance. Nevertheless, when contemplating the chance of public intervention, it is vital to recall that government quality also depends upon geography and historical and cultural factors, which can’t be easily modified in the short run.
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1 Exceptions include Kyriacou and Roca-Sagalés, (2012); Kyriacou et al. (2013).