Regional growth and convergence in Victoria

Abstract

Widespread variation in per capita income levels and the persistence of long standing income disparities are evident across Victoria. Persistent regional disparities are economically inefficient and socially inequitable. Economic change in Victoria between 1980 and 1998 is analysed to ascertain whether it has led to increased regional inequality. The regions are defined as the Australian Bureau of Statistics Statistical Divisions. Regional inequalities in income and employment are examined as important indicators of economic welfare. The factors influencing aggregate growth in the Victorian economy are identified, and incorporated into a model of regional income growth.

Standard statistical measures of dispersion show that taxable per capita income in the non-metropolitan regions is diverging from the Victorian state mean, whilst the per capita taxable income of Melbourne is increasing. The distribution of income within regions, as measured by the Gini coefficient, is becoming more equal.

Vector autoregression modelling of the aggregate Victorian economy indicates that the terms of trade and supply are the major sources of shocks to the economy. These variables are incorporated into a model of regional income growth, based on neoclassical growth theory. The average speed of convergence of the regions to their individual steady state was rapid at 22 per cent. The terms of trade, the unemployment rate, the gross value of agriculture per capita and average rainfall were found to be significant in the model.

Within the neoclassical framework of regional economic growth, persistent regional disparities can be attributed to barriers to factor mobility and/or economic shocks. The above findings are interpreted within this framework, in relation to the process of regional adjustment, population change, regional labour markets and the possible impediments to economic growth.