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Spatial Filtering, Model Uncertainty and the Speed of Income Convergence in Europe

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  • Jesus Crespo Cuaresma

    ()

  • Martin Feldkircher

    ()

Abstract

In this paper we put forward a Bayesian Model Averaging method dealing with model uncertainty in the presence of potential spatial autocorrelation. The method uses spatial filtering in order to account for different types of spatial links. We contribute to existing methods that handle spatial dependence among observations by explicitly taking care of uncertainty stemming from the choice of a particular spatial structure. Our method is applied to estimate the conditional speed of income convergence across 255 NUTS-2 European regions for the period 1995-2005. We show that the choice of a spatial weight matrix - and in particular the choice of a class thereof - can have an important effect on the estimates of the parameters attached to the model covariates. We also show that estimates of the speed of income convergence across European regions depend strongly on the form of the spatial patterns which are assumed to underly the dataset. When we take into account this dimension of model uncertainty, the posterior distribution of the speed of convergence parameter appears bimodal, with a large probability mass around no convergence (0% speed of convergence) and a rate of convergence of 1%, approximately half of the value which is usually reported in the literature.

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Bibliographic Info

Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2009-17.

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Length: 32
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:inn:wpaper:2009-17

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Keywords: Model uncertainty; spatial filtering; determinants of economic growth; European regions.;

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References

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  1. 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.
  2. Jesus Crespo Cuaresma & Gernot Doppelhofer & Martin Feldkircher, 2008. "The Determinants of Economic Growth in European Regions," Working Papers 2008-26, Faculty of Economics and Statistics, University of Innsbruck.
  3. Olivier Parent & James P. Lesage, 2007. "Using the Variance Structure of the Conditional Autoregressive Spatial Specification to Model Knowledge Spillovers," University of Cincinnati, Economics Working Papers Series 2007-03, University of Cincinnati, Department of Economics.
  4. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
  5. Peter Egger & Michael Pfaffermayr, 2006. "Spatial convergence," Papers in Regional Science, Wiley Blackwell, vol. 85(2), pages 199-215, 06.
  6. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  7. Martin Feldkircher & Stefan Zeugner, 2009. "Benchmark Priors Revisited: On Adaptive Shrinkage and the Supermodel Effect in Bayesian Model Averaging," IMF Working Papers 09/202, International Monetary Fund.
  8. Carmen Fernández & Eduardo Ley & Mark F. J. Steel, . "Benchmark priors for Bayesian Model averaging," Working Papers 98-06, FEDEA.
  9. Manfred Fischer & Claudia Stirböck, 2006. "Pan-European regional income growth and club-convergence," The Annals of Regional Science, Springer, vol. 40(4), pages 693-721, December.
  10. 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.
  11. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, number 9780521898010, October.
  12. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
  13. Sala-i-Martin, Xavier, 1994. "Regional Cohesion: Evidence and Theories of Regional Growth and Convergence," CEPR Discussion Papers 1075, C.E.P.R. Discussion Papers.
  14. Liang, Feng & Paulo, Rui & Molina, German & Clyde, Merlise A. & Berger, Jim O., 2008. "Mixtures of g Priors for Bayesian Variable Selection," Journal of the American Statistical Association, American Statistical Association, vol. 103, pages 410-423, March.
  15. Niebuhr, Annekatrin, 2000. "Convergence and the effects of spatial interaction," HWWA Discussion Papers 110, Hamburg Institute of International Economics (HWWA).
  16. Jochonia S Mathunjwa & Jonathan Temple, 2006. "Convergence behaviour in exogenous growth models," Bristol Economics Discussion Papers 06/590, Department of Economics, University of Bristol, UK.
  17. 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.
  18. Ley, Eduardo & Steel, Mark F.J., 2008. "On the Effect of Prior Assumptions in Bayesian Model Averaging with Applications to Growth Regression," MPRA Paper 6773, University Library of Munich, Germany, revised 06 Jan 2008.
  19. 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.
  20. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, number 9780521725200, October.
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Citations

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Cited by:
  1. Jes�s Crespo Cuaresma & Gernot Doppelhofer & Martin Feldkircher, 2014. "The Determinants of Economic Growth in European Regions," Regional Studies, Taylor & Francis Journals, vol. 48(1), pages 44-67, January.
  2. World Bank, 2012. "EU11 Regular Economic Report : Coping with External Headwinds," World Bank Other Operational Studies 11896, The World Bank.
  3. Holger Breinlich & Gianmarco I. P. Ottaviano & Jonathan R. W. Temple, 2013. "Regional growth and regional decline," LSE Research Online Documents on Economics 51575, London School of Economics and Political Science, LSE Library.
  4. Benos, Nikos & Karagiannis, Stelios, 2013. "Do Cross-Section Dependence and Parameter Heterogeneity Matter? Evidence on Human Capital and Productivity in Greece," MPRA Paper 53326, University Library of Munich, Germany.
  5. Jesús Peiró-Palomino & Anabel Forte Deltell, 2013. "Does social capital matter for European regional growth?," Working Papers 2013/02, Economics Department, Universitat Jaume I, Castellón (Spain).
  6. Cuaresma, Jesus Crespo & Oberhofer, Harald & Smits, Karlis & Vincelette, Gallina A, 2012. "Drivers of convergence in eleven eastern European countries," Policy Research Working Paper Series 6185, The World Bank.
  7. Seya, Hajime & Yamagata, Yoshiki & Tsutsumi, Morito, 2013. "Automatic selection of a spatial weight matrix in spatial econometrics: Application to a spatial hedonic approach," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 429-444.
  8. Umber, Marc P. & Grote, Michael H. & Frey, Rainer, 2014. "Same as it ever was? Europe's national borders and the market for corporate control," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 109-127.
  9. Jesús Crespo Cuaresma & Martin Feldkircher, 2010. "Regional Convergence in Europe and the Role of Urban Agglomerations," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3.
  10. Matthias Firgo & Peter Huber, 2013. "Unconditional Convergence in Currency Unions: An analysis of European regions from 1991 to 2009," WWWforEurope Policy Paper series 4, WWWforEurope.

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