Spatial Income Inequality, Convergence, and Regional Development in a Lower Middle-Income Country: Satellite Evidence from the Philippines

Abstract

This paper examines spatial income inequality and convergence in the Philippines—a lower middle-income country with historically high inequality—and its course over the process of economic development. Combining higher quality nighttime lights (NTLs) with gridded population data, I construct subnational measures of spatial inequality for the 17 administrative regions in the country in the period 2000–2020. Using this unique dataset, I first document the tremendous improvement in income disparities over the last two decades. Income per capita across provinces has converged rapidly, and income dispersion within administrative regions has narrowed markedly. Then, I uncover a U-shaped relationship between spatial inequality and economic development, which is robust; across alternative measures of inequality; to the outlier effects of highly urbanized cities; across parametric and semiparametric specifications; to business-cycle effects; and to persistence of spatial inequality. Finally, I confirm that structural transformation acts as a transmission channel of this U-shaped link.