Growth in Regions

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GROWTH IN REGIONS Nicola Gennaioli Rafael La Porta Florencio Lopez de Silanes Andrei Shleifer Working Paper 18937 http://www.nber.org/papers/w18937

NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 April 2013

We are grateful to Jan Luksic for outstanding research assistance, to Antonio Spilimbergo for sharing the structural reform data set, and to Robert Barro, Peter Ganong, and Simon Jaeger for extremely helpful comments. Shleifer acknowledges financial support from the Kauffman Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2013 by Nicola Gennaioli, Rafael La Porta, Florencio Lopez de Silanes, and Andrei Shleifer. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

Growth in Regions Nicola Gennaioli, Rafael La Porta, Florencio Lopez de Silanes, and Andrei Shleifer NBER Working Paper No. 18937 April 2013 JEL No. O43,O47,R11 ABSTRACT We use a newly assembled sample of 1,503 regions from 82 countries to compare the speed of per capita income convergence within and across countries. Regional growth is shaped by similar factors as national growth, such as geography and human capital. Regional convergence is about 2.5% per year, not more than 1% per year faster than convergence between countries. Regional convergence is faster in richer countries, and countries with better capital markets. A calibration of a neoclassical growth model suggests that significant barriers to factor mobility within countries are needed to account for the evidence.

Nicola Gennaioli Department of Finance Università Bocconi Via Roentgen 1 20136 Milan, Italy ngennaioli@crei.cat Rafael La Porta Dartmouth College Tuck School 210 Tuck Hall Hanover, NH 03755 and NBER rafael.laporta@dartmouth.edu

Florencio Lopez de Silanes EDHEC Business School 393, Promenade des Anglais BP 3116 06202 Nice Cedex 3, France and NBER Florencio.lopezdesilanes@edhec.edu Andrei Shleifer Department of Economics Harvard University Littauer Center M-9 Cambridge, MA 02138 and NBER ashleifer@harvard.edu

1. Introduction Since the fundamental work of Barro (1991), the question of convergence of income levels between countries has received enormous attention (Barro, Mankiw, and Sala-i-Martin 1995, Caselli, Esquivel and Lefort 1996, Aghion, Howitt, and Mayer-Foulkes 2005, Barro 2012). Several papers also analyze convergence between regions of the same country, as in the case of Japanese prefectures, Canadian provinces, Australian regions, Russian regions, or U.S. states (Barro and Sala-i-Martin 1991, 1992, 1995, Blanchard and Katz 1992, Cashin 1995, Coulombe and Lee 1995, Sala-i-Martin 1996, Ganong and Shoag 2012, Guriev and Vakulenko 2012, Spilimbergo and Che 2012), but data availability has limited this kind of exercises. In this paper, we systematically study regional convergence by using a large sample of sub-national regions. To this end, we expand the dataset from Gennaioli et al. (2013) by collecting time-series data on regional GDP. We end up with data on 1,503 regions in 82 countries. We then analyze the patterns of convergence among regions and compare them to convergence across countries. There is substantial inequality among regions of the same country that needs to be understood. In Brazil, which is typical in terms of regional inequality, the mean (median) region has per capita income in 2009 of about US $ 6,400 (US $5,000), and the standard deviation of regional GDP per capita is $3,000. In the average country in our dataset, the richest region is 5.2...
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