Regional growth and local convergence: Evidence for Portugal

It is widely known that regional disparities do not lead to economic growth. By this, it is meant that convergence among regions might be responsible for a propensity to national growth. In the same way, if there is a sub regional division (with different economic realities) the same phenomenon should be verified. Thus, sub-regional convergence should lead to regional growth. This regional desegregation of space is (in political terms) varies from country to country. In the Portuguese reality, one of the most accepted divisions is made by NUTs, with three level of desegregation. NUTs level 3 are still desegregated in municipalities (which are a small portion of space that usually share the same economic and social reality). The theoretical study of convergence relies on the use of a few measures. On of the best known is the β convergence: conditional and unconditional. The conclusions obtained in a previous study (by the same author) showed that conditional convergence improves the results for the study of convergence. This measure estimates convergence as a function of GDP (in purchasing power parity) and a battery of exogenous variables that contain information about technological level, industrial structure, human capital qualification, social conditions, etc. In order to attain information for this battery of exogenous variables it is used a proxy variable, which is the Human Development Index (HDI). This variable is pulished by UNDP every year and allows the international comparision of living conditions between countries. The Portuguese government uses the same approach to calculate a HDI for all municipalities. The estimation of conditional β convergence is made by a non-linear model regression, which is widely used in the theoretical economic study of convergence. Besides this estimation, other forms of regional convergence study will be applied, permitting a deeper analysis. The aim of this work is to estimate convergence in terms of Portuguese nuts and to verify whether it is true that regions with higher convergence speed rate also experiment higher growth rates. If this is true, this could constitute a policy opportunity, since governments should stimulate regional convergence, in order to attain national economic growth.