Regional Growth In Portugal: Assessing The Contribution Of Earnings And Education Inequality

Regional economic growth in Portugal has mainly been studied from the perspective of convergence with data ending by the early 2000’s. The country as a whole has stopped converging to the output levels of the richest European countries by this period and has also become one of the most unequal EU member-states in terms of income distribution in the meantime. It is thus important to analyze the growth performance at the regional level in a more recent period, 1995- 2007, emphasizing regional disparities in inequality as explanatory factors. This study examines the relationship between inequality and regional growth in Portugal at NUTS III level exploring the explanatory power of earnings and education inequality measures computed with data from the Quadros de Pessoal database. The results point to a positive relationship between initial inequality and regional growth, stronger for education than for earnings inequality, but with earnings inequality measures revealing a higher explanatory power. Moreover, there is evidence that it is inequality at the top end of the distribution that is relevant to explain regional growth, a result that reinforces the higher propensities to save of the richer and the incentives mechanisms of transmission from inequality to growth. Additionally, the evidence on the existence of convergence among Portuguese NUTS III regions during the period under analysis is mixed. These findings are robust to the introduction of most additional control variables and the consideration of alternative measures of earnings and education inequality