Half a World: Regional inequality in five great federations

The paper studies regional (spatial) inequality in five most populous countries in the world: China, India, the United States of America, Indonesia and Brazil in the period 1980-2000. They are all federations composed of entities (states or provinces) with substantial autonomy. Two types of regional inequalities are considered: Concept 1 inequality which is inequality between mean incomes (GDPs per capita) of states/provinces and Concert 2 inequality which is inequality between population-weighted regional mean incomes. The first inequality speaks to the issues of income convergence, the second, to the issue of overall inequality as perceived by citizens within a nation. China and India show rising inequality in terms of both concepts in the decade of the 1990’s; Indonesia, on the contrary, displays decreasing inequality in both from the early 1980’s up to the Asian crisis. Overall, we find that openness is negatively associated with Concept 1 regional inequality, and positively with Concept 2 inequality. Openness thus seems to help poorer regions (within nations) to catch up, but also leads to disparity in outcomes for populous states with some getting ahead and others falling behind. Maharashtra vs. Bihar, and Shandong vs. Sichuan provide nice examples of such outcomes in India and China. Higher inflation and higher real interest rate are also associated with greater Concept 2 regional inequality.