The geography of inequalities in Europe

This paper analyses some of the theoretical and empirical arguments that serve to legitimate regional policies in Europe. We start by reviewing the existing evidence that European integration has led to a process of convergence between countries but not between regions inside countries and suggest some mechanisms through which this can happen. Taking the example of France, we show that in the past twenty years regional divergence in production has indeed occurred. However, the geography of incomes has, during the same period, become more equal producing a "scissors effect" between the geographies of production and income. This suggests that transfers, which have nothing to do with regional policies, have, at least in France, more than compensated the increase in production inequality. Hence, "regional convergence" is not a synonym of "regional cohesion" at least at the national level. We then review evidence on a possible trade-off between growth and regional inequalities to suggest that efficiency motives can not easily be used to defend regional policies. Both evidence and theory suggest that regional concentration leads to efficiency gains. This also implies that the EU is faced with a choice it has tried to avoid until now. Either, it puts its effort in slowing or even reversing the process of spatial economic concentration at the national level or it concentrates on policies to speed up the convergence process between poor and rich countries. Finally, we analyse the relation between spatial and social inequalities. We report empirical evidence for Europe that suggests a strong empirical relation between the two: even after controlling for transfers and other possible determinants of individual inequalities, we find that countries with more regional inequalities are also those with more individual inequalities.