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

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  • Jesús Crespo Cuaresma

    () (Department of Economics, University of Innsbruck)

  • 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 from 1995 to 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 underlie the dataset. When we take into account this dimension of model uncertainty, the posterior distribution of the speed of convergence parameter has a large probability mass around a rate of convergence of 1%, approximately half of the value which is usually reported in the literature. JEL classification: C11, C15, C21, R11, O52

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Bibliographic Info

Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 160.

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Length: 37 pages
Date of creation: 11 Jan 2010
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Handle: RePEc:onb:oenbwp:160

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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. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, number 9780521725200, May.
  2. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, number 9780521898010, May.
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  4. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. James Lesage & Manfred Fischer, 2008. "Spatial Growth Regressions: Model Specification, Estimation and Interpretation," Spatial Economic Analysis, Taylor and Francis Journals, vol. 3(3), pages 275-304.
  8. 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.
  9. Carmen Fernandez & Eduardo Ley & Mark Steel, 2001. "Model uncertainty in cross-country growth regressions," Econometrics 0110002, EconWPA.
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  11. 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.
  12. Jesus Crespo-Cuaresma & Gernot Doppelhofer & Martin Feldkircher, 2009. "The Determinants of Economic Growth in European Regions," wiiw Working Papers 57, The Vienna Institute for International Economic Studies, wiiw.
  13. Niebuhr, Annekatrin, 2001. "Convergence and the Effects of Spatial Interaction," Discussion Paper Series 26351, Hamburg Institute of International Economics.
  14. 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.
  15. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  16. 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.
  17. Peter Egger & Michael Pfaffermayr, 2006. "Spatial convergence," Papers in Regional Science, Wiley Blackwell, vol. 85(2), pages 199-215, 06.
  18. 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.
  19. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  20. 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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Cited by:
  1. Jesús Crespo Cuaresma, & Martin Feldkircher & Peter Mayerhofer, 2010. "Regional Convergence in Europe and the Role of Urban Agglomerations," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 64–78, August.
  2. Jesús Crespo-Cuaresma & Gernot Doppelhofer & Martin Feldkircher, 2009. "The Determinants of Economic Growth in European Regions," CESifo Working Paper Series 2519, CESifo Group Munich.

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