Within countries Across countries Total inequality Within countries Across countries Total inequality

Theil index for GDP per capita Theil index for GDP per worker
0,1 0,1

0,09 0,09

0,08 0,08

0,07 0,07

0,06 0,06

0,05 0,05

0,04 0,04

0,03 0,03

0,02 0,02

0,01 0,01

0 0
 Frontier regions Lagging regions 75% of regions

USD PPP per employee

100 000

1.6% per year

90 000

80 000

1.3% per year

70 000

1.3% per year

60 000

50 000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
 -
USD

110 000
130 000
150 000

10 000
30 000
50 000
70 000
90 000

-5
-3
-1
1
3
5
7
9
%
South and East
South and East
C. Anatolia - W.S.
Ticino
Oslo Region
S.-Kanto
Šiauliai county
Brussels Region
Greater Poland West
Oslo Region
N. Territory Île-de-France
East Stockholm
Minimum

Minimum
Central Bohemia D. of Columbia
N. Holland
Aguascalientes
Alberta

-12
Gangwon
Copenhagen Region
Manitoba Bolzano-Bozen
East Basque Country
Canterbury Vienna
Stockholm Hamburg
Helsinki-Uusimaa
Catalonia
Greater London
Flevoland
Taranaki
North Estonia Bratislava

Country average
Country average

Zealand Chungcheong
Brittany Istanbul
Thuringia Prague
Wales Attica
West
Zurich
Lisbon Metropolitan
Centro
Mazovia
Flemish Region Vilnius county
C. Transdanubia North Estonia

Maximum
Maximum

North Dakota W. Transdanubia

Vorarlberg Riga
Campeche
Antofagasta
South
Bolzano-Bozen Bucharest - Ilfov
Thessaly South West
 Within TL2 regions Between TL2 regions
Theil index across TL3 regions
0.15;0.21
0,05

0,04

0,03

0,02

0,01

0,00

Country (number of TL2 regions)

 %
83

82
Productivity level of Predominantly Urban
81 regions=100 Rural close to cities

80

79
Rural total
78

77

76
Rural remote
75
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
 𝑌 = 𝐴 ∙ 𝑓(𝐾, 𝐿, 𝐻)

𝐾
𝐿 𝐻

- A = 𝑒 λt
-
 𝑌 = 𝐴(𝑅) ∙ 𝑓(𝐾𝑖 , 𝐿𝑖 , 𝑅𝑖 )

(𝑖)
𝐴(𝑅)

-
-

-
-

-
-

-
-
 ∆𝑃𝑗𝑡 𝑗 𝑡

∆𝑃𝑗𝑡 = ∑ 𝜃𝑖𝑡−1 ∙ ∆𝑝𝑖𝑡 + ∑ ∆𝜃𝑖𝑡 ∙ 𝑝𝑖𝑡−1 + ∑ ∆𝜃𝑖𝑡 ∙ ∆𝑝𝑖𝑡 + (∑ 𝜃𝑖𝑡 ∙ ∆𝑝𝑖𝑡 − ∑ 𝜃𝑖𝑡−1 ∙ 𝑝𝑖𝑡−1 )
𝑖∈𝐶 𝑖∈𝐶 𝑖∈𝐶 𝑖∈𝑁 𝑖∈𝑋

𝜃𝑖𝑡 𝑖 𝑡 𝑝𝑖𝑡 𝑖
𝑡
∆𝑦𝑖𝑗𝑡 = 𝛼𝑙𝑝𝑖𝑗𝑡−1 + 𝛿∆𝑘𝑖𝑗𝑡 + 𝛾′𝐼𝑁𝑁𝑂𝑖𝑗𝑡−1 + 𝛽′𝐹𝐷𝑖𝑗𝑡−1 + 𝜏′𝑆𝑇𝑅𝑖𝑗𝑡−1 + 𝜂𝑖𝑗 + 𝜂𝑡
+ 𝜀𝑖𝑗𝑡−1

∆𝑦𝑖𝑗𝑡
𝑖 𝑗 𝑡 ∆𝑘𝑖𝑗𝑡
𝑙𝑝𝑖𝑗𝑡−1

𝐼𝑁𝑁𝑂𝑖𝑗𝑡−1

𝐹𝐷𝑖𝑗𝑡−1
𝑆𝑇𝑅𝑖𝑗𝑡−1

𝜂𝑖𝑗

𝜂𝑡
 𝐸𝑛𝑡𝑟𝑦𝑖𝑗𝑡 −𝐸𝑥𝑖𝑡𝑖𝑗𝑡
𝐴𝑐𝑡𝑖𝑣𝑒𝑖𝑗𝑡−1

-
-

𝐸𝑛𝑡𝑟𝑦𝑖𝑗𝑡 +𝐸𝑥𝑖𝑡𝑖𝑗𝑡
𝐴𝑐𝑡𝑖𝑣𝑒𝑖𝑗𝑡
𝐺𝑉𝐴𝑖𝑗𝑡
𝐿𝑖𝑗𝑡
 𝐾𝑖𝑗𝑡 𝐾𝑖𝑗𝑡−1
∆𝑘𝑖𝑗𝑡 = ln ( ) − ln ( )
𝐿𝑖𝑗𝑡 𝐿𝑖𝑗𝑡−1

𝐾𝑖𝑗𝑡 𝐿𝑖𝑗𝑡

𝑡0 = 2000

𝐼𝑖𝑗,2000
𝐾𝑖𝑗,2000 =
𝑔𝑖𝑗 + 𝛿

𝐼𝑖𝑗,2000 𝑖 𝑔𝑖𝑗
𝛿

𝐾𝑖𝑗𝑡 = (1 − 𝛿) ∙ 𝐾𝑖𝑗𝑡−1 + 𝐼𝑖𝑗𝑡 .

 𝐾 𝐾
𝑙𝑛 ( 𝐿 𝑖𝑗𝑡 ) − 𝑙𝑛 ( 𝐿 𝑖𝑗𝑡−1 ).
𝑖𝑗𝑡 𝑖𝑗𝑡−1

𝑡0

𝐿 𝑡𝑒𝑟𝑡.𝑒𝑑𝑢𝑖𝑗𝑡
𝐿𝑖𝑗𝑡
 𝐿𝑠𝑒𝑐𝑡𝑜𝑟
𝑖𝑗𝑡
𝐿𝑖𝑗𝑡

2
2 𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡𝑠𝑖𝑗𝑡
ℎℎ𝑖𝑖𝑗𝑡 = ∑ 𝑆𝐻𝑠𝑖𝑗𝑡 = ∑( )
𝐸𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡𝑖𝑗𝑡
𝑠 𝑠
𝑆𝐻𝑠𝑖𝑗𝑡 𝑖 𝑡
𝑠
 ∆𝑦𝑖𝑗𝑡

𝑙𝑝𝑖𝑗𝑡−1
∆𝑘𝑖𝑗𝑡

𝑛𝑒𝑡𝑖𝑗𝑡−1
𝑐ℎ𝑢𝑟𝑛𝑖𝑗𝑡−1
𝑎𝑐𝑡𝑖𝑣𝑒
𝑠𝑖𝑧𝑒𝑖𝑗𝑡−1
𝑏𝑜𝑟𝑛
𝑠𝑖𝑧𝑒𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1
𝑡𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1
𝑝𝑟𝑖𝑚
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1
𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1
𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1
 𝑝𝑟𝑖𝑚 𝑠𝑒𝑐 𝑡𝑒𝑟𝑡 𝑎𝑐𝑡𝑖𝑣𝑒 𝑏𝑜𝑟𝑛
∆𝑦𝑖𝑗𝑡 𝑙𝑝𝑖𝑗𝑡−1 ∆𝑘𝑖𝑗𝑡 𝑡𝑘𝑖𝑗𝑡−1 ℎ𝑘𝑖𝑗𝑡−1 ℎℎ𝑖𝑖𝑗𝑡−1 𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1 𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1 𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1 𝑛𝑒𝑡𝑖𝑗𝑡−1 𝑐ℎ𝑢𝑟𝑛𝑖𝑗𝑡−1 𝑠𝑖𝑧𝑒𝑖𝑗𝑡−1 𝑠𝑖𝑧𝑒𝑖𝑗𝑡−1
∆𝑦𝑖𝑗𝑡

𝑙𝑝𝑖𝑗𝑡−1

∆𝑘𝑖𝑗𝑡

𝑡𝑘𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑝𝑟𝑖𝑚
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑐ℎ𝑢𝑟𝑛𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑠𝑖𝑧𝑒𝑖𝑗𝑡−1

𝑏𝑜𝑟𝑛
𝑠𝑖𝑧𝑒𝑖𝑗𝑡−1
 ∙
∙ 𝑖 𝑡

∑ 𝑢𝑖𝑡 = ∑ 𝜂𝑖 + ∑ 𝜀𝑖𝑡 ∑ 𝜂𝑖
 𝑦𝑖𝑡 = 𝛽′𝑋𝑖𝑡 + 𝑢𝑖𝑡

𝜂𝑖
𝜂𝑡

𝑢𝑖𝑡 = 𝜂𝑖 + 𝜀𝑖𝑡 𝑢𝑖𝑡 = 𝜂𝑡 + 𝜀𝑖𝑡

𝜂𝑖
𝜀𝑖𝑡
𝑥𝑖𝑡 , 𝜂𝑖
𝜂.
𝑥𝑖𝑡 𝑥𝑖𝑡 , 𝜂𝑖 ≠
 𝜂.
𝜀𝑖𝑡

𝛽 𝜀𝑖𝑡

∆𝑦𝑖𝑗𝑡 = 𝝉𝟏 + 𝝉𝟐 𝑫𝟐 + ⋯ + 𝝉𝟏𝟎𝟏 𝑫𝟏𝟎𝟏 + 𝛼𝑙𝑝𝑖𝑗𝑡−1 + 𝛿∆𝑘𝑖𝑗𝑡 + 𝛾 ′ 𝐼𝑁𝑁𝑂𝑖𝑗𝑡−1 + 𝛽′𝐼𝐷𝑖𝑗𝑡−1

+ 𝜀𝑖𝑗𝑡−1

𝜏1
 ∆𝑦̈𝑖𝑗 = 𝛼𝑙𝑝̈ 𝑖𝑗 + 𝛿∆𝑘̈𝑖𝑗 + 𝛾′𝐼𝑁𝑁𝑂
̈ 𝑖𝑗 + 𝛽′𝐼𝐷̈𝑖𝑗 + 𝜀̈𝑖𝑗

6
∆𝑦̈𝑖𝑗 = ∆𝑦𝑖𝑗𝑡 − ∆𝑦
̅̅̅̅𝑖𝑗 ̅̅̅̅𝑖𝑗 = ∑𝑡=1(∆𝑦𝑖𝑗𝑡 )
∆𝑦 𝑡

𝑦
𝑥
 𝜂𝑖

𝜂𝑖

𝑦𝑖𝑡 = 𝛽′𝑋𝑖𝑡 + 𝑢𝑖𝑡

𝑢𝑖𝑡 = 𝜂𝑖 + 𝜀𝑖𝑡

𝜂𝑖

• 𝜂𝑖 ~𝑁(0, 𝜎𝜂2 )
• 𝜀𝑖𝑡 ~𝑁(0, 𝜎𝜀2 )
• 𝐸(𝜂𝑖 𝜀𝑖𝑡 ) = 0; 𝐸(𝜂𝑖 𝜂𝑗 ) = 0 (𝑖 ≠ 𝑗)
• 𝐸(𝜀𝑖𝑡 𝜀𝑖𝑠 ) = 𝐸(𝜀𝑖𝑡 𝜀𝑖𝑠 ) = 𝐸(𝜀𝑖𝑡 𝜀𝑗𝑠 ) = 0 (𝑖 ≠ 𝑗; 𝑡 ≠ 𝑠).

𝑢𝑖𝑡

• 𝐸(𝑢𝑖𝑡 ) = 0
• 𝑢𝑖𝑡 ) = 𝜎𝜂2 + 𝜎𝜀2

𝜎𝜂2 = 0

𝜎𝜂2
𝜌 = 𝑐𝑜𝑟𝑟(𝑢𝑖𝑡 , 𝑢𝑖𝑠 ) =
𝜎𝜂2 + 𝜎𝜀2

𝜌≈0
𝜌

𝜂𝑖
 Y
X Y E(Y|X)
X E(Y|X) = 𝛽′𝑋

𝑄0.75 𝑄0.75 = 0.0185

𝑄𝑢𝑎𝑛𝑡𝑖𝑙𝑒 𝑞(Y|X) = 𝛽′𝑚 X

 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑗𝑖𝑡

𝐿𝑃𝑗𝑖𝑡−1

𝑇𝐾𝑗𝑖𝑡−1

ℎ𝑘𝑗𝑖𝑡−1

ℎℎ𝑖𝑗𝑖𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑗𝑖𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑗𝑖𝑡−1

-
-
-
-
 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑖𝑗𝑡

𝐿𝑃𝑖𝑗𝑡−1

𝑇𝐾𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑡𝑢𝑟𝑏𝑖𝑗𝑡−1

2
𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

𝑏𝑜𝑟𝑛
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

-
-
-
-
∆𝑦𝑖𝑗𝑡
𝑐𝑜𝑣 (𝑥𝑖𝑡 , 𝜂𝑖𝑗 ) ≈ −0.96

𝜂𝑗𝑖
 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑖𝑗𝑡

𝐿𝑃𝑖𝑗𝑡−1

𝑇𝐾𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−11

𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑡𝑢𝑟𝑏𝑖𝑗𝑡−1

2
𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

𝑏𝑜𝑟𝑛
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

-
-
-
-

-
𝜎𝜂2
- 𝜌= 𝜌 = 0.95 𝜌 = 0.94
𝜎𝜂2 +𝜎𝜀2
- 𝜂𝑗𝑖
 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑖𝑗𝑡

𝐿𝑃𝑖𝑗𝑡−1

𝑇𝐾𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−11

𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑡𝑢𝑟𝑏𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

-
-
-
-
 
 𝑖 𝑡

𝑅&𝐷𝑖𝑗𝑡−1
 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑖𝑗𝑡

𝐿𝑃𝑖𝑗𝑡−1

𝑅&𝐷𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑡𝑢𝑟𝑏𝑖𝑗𝑡−1

2
𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

𝑏𝑜𝑟𝑛
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

-
-
-
-

-
𝜎𝜂2
- 𝜌= 𝜌 = 0.97
𝜎𝜂2 +𝜎𝜀2
- 𝜂𝑗𝑖
 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑖𝑗𝑡

𝐿𝑃𝑖𝑗𝑡−1

𝑇𝐾𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−11

𝑛𝑒𝑡𝑖𝑗𝑡−1

2
𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1

-
-
-
-
 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑖𝑗𝑡

𝐿𝑃𝑖𝑗𝑡−1

𝑇𝐾𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−11

𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑡𝑢𝑟𝑏𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1
 ∆𝑦𝑗𝑖𝑡
∆𝑘𝑖𝑗𝑡

𝐿𝑃𝑖𝑗𝑡−1

𝑇𝐾𝑖𝑗𝑡−1

ℎ𝑘𝑖𝑗𝑡−1

ℎℎ𝑖𝑖𝑗𝑡−1

𝑠𝑒𝑐
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−1

𝑡𝑒𝑟𝑡
𝑠ℎ𝑎𝑟𝑒𝑖𝑗𝑡−11

𝑛𝑒𝑡𝑖𝑗𝑡−1

2
𝑛𝑒𝑡𝑖𝑗𝑡−1

𝑎𝑐𝑡𝑖𝑣𝑒
𝑆𝐼𝑍𝐸𝑖𝑗𝑡−1