Does Income Polarization Affect Economic Growth? The Case of the European Regions

Abstract: This paper examines the relationship between income polarisation and economic growth in the regions of the European Union over the period 1993-2003. The results indicate that the level of income polarisation is negatively associated with regional growth. This finding is in fact robust to various alternative specifications including a number of additional explanatory variables, such as initial per capita gross domestic product, industry mix, human capital stock, population density, or market potential. Furthermore, it should be noted that the observed negative correlation between polarisation and economic performance does not depend on the number of groups used to analyse the degree of income stratification within the sample regions.