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The Determinants of Economic Growth in European Regions

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  • Jesús Crespo-Cuaresma
  • Gernot Doppelhofer
  • Martin Feldkircher

Abstract

We use Bayesian Model Averaging (BMA) to evaluate the robustness of determinants of economic growth in a new dataset of 255 European regions in the 1995-2005 period. We use three different specifications based on (1) the cross-section of regions, (2) the cross-section of regions with country fixed effects and (3) the cross-section of regions with a spatial autoregressive (SAR) structure. We investigate the existence of parameter heterogeneity by allowing for interactions of potential explanatory variables with geographical dummies as extra regressors. We find remarkable differences between the determinants of economic growth implied by differences between regions and those within regions of a given country. In the cross-section of regions, we find evidence for conditional convergence with speed around two percent. The convergence process between countries is dominated by the catching up process of regions in Central and Eastern Europe (CEE), whereas convergence within countries is mostly a characteristic of regions in old EU member states. We also find robust evidence of positive growth of capital cities, a highly educated workforce and a negative effect of population density.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2519.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2519

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Keywords: model uncertainty; spatial autoregressive model; determinants of economic growth; European regions;

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  1. Winford H. Masanjala & Chris Papageorgiou, 2008. "Rough and lonely road to prosperity: a reexamination of the sources of growth in Africa using Bayesian model averaging," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(5), pages 671-682.
  2. James Lesage & Manfred Fischer, 2008. "Spatial Growth Regressions: Model Specification, Estimation and Interpretation," Spatial Economic Analysis, Taylor & Francis Journals, vol. 3(3), pages 275-304.
  3. Gernot Doppelhofer & Melvyn Weeks, 2007. "Jointness of Growth Determinants," CESifo Working Paper Series 1978, CESifo Group Munich.
  4. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  5. Canova, Fabio, 1999. "Testing for Convergence Clubs in Income per-capita: A Predictive Density Approach," CEPR Discussion Papers 2201, C.E.P.R. Discussion Papers.
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  7. Becker, Sascha & Egger, Peter H & Fenge, Robert & von, Ehrlich Maximilian, 2008. "Going NUTS: The Effect of EU Structural Funds on Regional Performance," Stirling Economics Discussion Papers 2008-27, University of Stirling, Division of Economics.
  8. Olivier Parent & James P. LeSage, 2008. "Using the variance structure of the conditional autoregressive spatial specification to model knowledge spillovers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(2), pages 235-256.
  9. Eklund, Jana & Karlsson, Sune, 2007. "Computational Efficiency in Bayesian Model and Variable Selection," Working Papers 2007:4, Örebro University, School of Business.
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  11. Ley, Eduardo & Steel, Mark F. J., 2007. "On the effect of prior assumptions in Bayesian model averaging with applications to growth regression," Policy Research Working Paper Series 4238, The World Bank.
  12. Roberto Basile, 2008. "Regional economic growth in Europe: A semiparametric spatial dependence approach," Papers in Regional Science, Wiley Blackwell, vol. 87(4), pages 527-544, November.
  13. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  14. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
  15. Jesús Crespo Cuaresma & Martin Feldkircher, 2010. "Spatial Filtering, Model Uncertainty and the Speed of Income Convergence in Europe," Working Papers 160, Oesterreichische Nationalbank (Austrian Central Bank).
  16. Olivier Parent & James P. Lesage, 2007. "Bayesian Model Averaging for Spatial Econometric Models ," University of Cincinnati, Economics Working Papers Series 2007-02, University of Cincinnati, Department of Economics.
  17. Jesus Crespo Cuaresma & Gernot Doppelhofer, 2006. "Nonlinearities in Cross-Country Growth Regressions: A Bayesian Averaging of Thresholds (BAT) Approach," Vienna Economics Papers 0608, University of Vienna, Department of Economics.
  18. Michele Boldrin & Fabio Canova, 2001. "Inequality and convergence in Europe's regions: reconsidering European regional policies," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 205-253, 04.
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