Bridging the economic divide within
            nations : a scorecard on the performance of regional
            development policies in reducing regional income disparities
Regional inequalities represent a
            continuing development challenge in most countries,
            especially those with large geographic areas. Globalization
            heightens these challenges because it places a premium on
            skills: since rich regions typically also have better
            educated and better skilled labor, the gulf between rich and
            poor regions widens. While central governments in unitary
            states are relatively unconstrained in their choice of
            policies for reducing regional disparities, in a federation
            the division of powers curtails federal flexibility in
            policy choice. Thus in federal states large regional
            disparities can represent serious threats, with the
            state's inability to deal with such inequities creating
            potential for disunity and, in extreme cases, for
            disintegration. Inequalities beyond a threshold may lead to
            calls for separation by both the richest and the poorest
            regions. While the poorest regional may consider the
            inequalities a manifestation of regional injustice, the
            richest regions may view the union with the poorest regions
            as holding them back in their drive toward prosperity. Under
            these circumstances, there is a presumption in development
            economics that decentralized fiscal arrangements would lead
            to ever widening regional inequalities. The authors provide
            an empirical test of this hypothesis. The authors conclude
            that regional development policies have failed in almost all
            countries, federal and unitary alike. Among 10 countries
            with high or substantial regional income inequality, only
            one (Thailand) has experienced convergence in regional
            incomes. Still, federal countries do better in restraining
            regional inequalities, because of the greater political risk
            these disparities pose for such countries. The authors
            classify countries by degree of convergence in regional
            incomes: a) Countries experiencing regional income
            divergence - Brazil, China, India, Indonesia, the
            Philippines, Romania, the Russian Federation, Sri Lanka, and
            Vietnam. b) Countries experiencing no significant change in
            regional income variation - Canada and Mexico. c) Countries
            experiencing regional income convergence - Chile, Pakistan,
            Thailand, the United States, and Uzbekistan. Regional
            development outcomes observed in these countries provide a
            revealing look at the impact of regional development
            policies. While countries experiencing divergence tend to
            focus on interventionist policies, those experiencing
            convergence have taken a hands-off approach to regional
            development and instead focused on promoting an economic
            union by removing barriers to factor mobility and ensuring
            minimum standards in basic services across the nation. In
            Chile, for example, convergence in regional incomes is
            largely attributable to liberalizing the economy and
            removing distortions so that regions could discover their
            own comparative advantage. In Pakistan and the United States
            convergence is attributable to greater factor mobility.
            Paradoxically, creating a level playing field helps
            disadvantaged regions more than do paternalistic
            protectionist policies.