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Geography and regional income convergence among Brazilian States

Carlos R. Azzoni, Naercio Menezes Filho, Tatiane A. Menezes, Raul M. Silveira Neto

[1999]

Abstract: The objective of the study is to identify the role of geographical variables in explaining differences in per capita income among Brazilian states. It also aims at ascertaining the degree to which such variables affect the convergence or divergence trends in per capita income. The variation in GDP per capita for Brazilian states is correlated to geographical and household variables. The aim is to capture not only the influence of household characteristics on the convergence of per capita income (along the lines of the neoclassical model), but also that of spatial or geographical characteristics. The study simultaneously considers data on geographical variables and pseudo-panel data on households. The basis for the econometric model is a standard panel data model with fixed household effects, as protection from the possible spurious influence of geographical variables. A pseudo-panel is used to estimate a quasi-difference equation to explain the convergence of per-capita household income across Brazilian states. The results indicate that besides the household and infra-structure variables, the geographic ones do have an important impact in the preferred specification.