Asymmetric regional dynamics: from bust to recovery

Abstract

Regional convergence stands out in the severe adjustment of the Portuguese economy that followed the international fi nancial crisis.This result contrasts with increasing regional inequality in other European countries. We show that regions' GDP growth rates of the Portuguese economy were driven by debt and exports. Our estimates suggest that differences in regional debt-to-GDP and exports-to-GDP ratios resulted in asymmetric regional economic dynamics. Highly indebted regions had a more severe recession and aslower recovery. Regions more open to trade had a milder recession and a stronger recovery. Finally, our results suggest that fiscal decentralization may improve regions' resilience.