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.