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Working Paper

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The Appalachian Region has made progress in the various measures of development but still lags behind other national counterparts. Understanding the relationship between poverty and income inequality is important to evaluate how a development strategy would benefit the region. This paper presents a spatial simultaneous equations approach to determine the relationship between poverty and income inequality. Cross sectional county level data from 1990 and 2000 for the 420 counties in the Appalachian Region are used to examine the determinants of poverty and income inequality. The empirical results suggest that poverty and income inequality are inversely related. If the policy objective is to alleviate poverty, then considering reducing income inequality at the same time, may prove to render ineffective conclusions. The result findings also suggest that the income inequality in the Appalachian Region may actually contribute to its economic growth and to poverty reduction in the Region.