Persistence of inequalities across the Spanish regions

This paper investigates several issues concerning persistence of inequalities of relative income per capita among the Spanish regions over the period 1980 to 2002. For that purpose we take a Bayesian approach which extends the work by Canova and Marcet. First, we study to what extent there exists a fixed effect bias in the standard cross-section estimates, and we find that the speed of convergence is indeed underestimated. Second, we provide a battery of results whereby steady states and convergence rates are obtained for a continuum of prior distributions. We explain the higher convergence rates of regional incomes to their own steady states on the basis of the high degree of capital mobility among the Spanish regions. Finally, we also deal with persistence of inequalities by determining whether initial conditions matter in the distribution of regional steady states, and our conclusion is that regional disparities tend to persist over time. Copyright (c) 2009 the author(s). Journal compilation (c) 2009 RSAI.