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The Determinants of Economic Growth in European Regions

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  • Jesus 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 period 1995-2005. We use three different specifications based on (i) the cross-section of regions, (ii) the cross-section of regions with country fixed effects, and (iii) the cross-section of regions with a spatial autoregressive (SAR) structure. Our results indicate that the income 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 find robust evidence of asymmetric growth performance within countries, with a growth bonus in regions containing capital cities which is particularly sizeable in CEE countries, as well as a robust positive effect of education. The results are robust if we allow for spatial spillovers a priori. In this setting, we also find robust evidence of positive spillovers leading to growth clusters.

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Bibliographic Info

Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 57.

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Length: 32 pages including 7 Tables and 4 Figures
Date of creation: Sep 2009
Date of revision:
Publication status: Published as wiiw Working Paper
Handle: RePEc:wii:wpaper:57

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Keywords: model uncertainty; Bayesian Model Averaging (BMA); spatial autoregressive model; determinants of economic growth; urban agglomerations; European regions;

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References

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  1. 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, American Economic Association, vol. 94(4), pages 813-835, September.
  2. 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, University of Stirling, Division of Economics 2008-27, University of Stirling, Division of Economics.
  3. Olivier Parent & James P. Lesage, 2007. "Bayesian Model Averaging for Spatial Econometric Models ," University of Cincinnati, Economics Working Papers Series, University of Cincinnati, Department of Economics 2007-02, University of Cincinnati, Department of Economics.
  4. Crespo Cuaresma, Jesus & Doppelhofer, Gernot, 2007. "Nonlinearities in cross-country growth regressions: A Bayesian Averaging of Thresholds (BAT) approach," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(3), pages 541-554, September.
  5. Canova, Fabio, 1999. "Testing for Convergence Clubs in Income per-capita: A Predictive Density Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2201, C.E.P.R. Discussion Papers.
  6. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  7. 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.
  8. Eklund, Jana & Karlsson, Sune, 2007. "Computational Efficiency in Bayesian Model and Variable Selection," Working Papers, Örebro University, School of Business 2007:4, Örebro University, School of Business.
  9. Jesús Crespo Cuaresma & Martin Feldkircher, 2010. "Spatial Filtering, Model Uncertainty and the Speed of Income Convergence in Europe," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 160, Oesterreichische Nationalbank (Austrian Central Bank).
  10. 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., John Wiley & Sons, Ltd., vol. 23(2), pages 235-256.
  11. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers, Yale - Economic Growth Center 629, Yale - Economic Growth Center.
  12. Michele Boldrin & Fabio Canova, 2001. "Inequality and convergence in Europe's regions: reconsidering European regional policies," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 16(32), pages 205-253, 04.
  13. Gernot Doppelhofer & Melvyn Weeks, 2007. "Jointness of Growth Determinants," CESifo Working Paper Series 1978, CESifo Group Munich.
  14. James Lesage & Manfred Fischer, 2008. "Spatial Growth Regressions: Model Specification, Estimation and Interpretation," Spatial Economic Analysis, Taylor & Francis Journals, Taylor & Francis Journals, vol. 3(3), pages 275-304.
  15. 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.
  16. Luisa Corrado & Ron Martin & Melvyn Weeks, 2005. "Identifying and Interpreting Regional Convergence Clusters across Europe," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(502), pages C133-C160, 03.
  17. Edward E. Leamer, 1982. "Let's Take the Con Out of Econometrics," UCLA Economics Working Papers, UCLA Department of Economics 239, UCLA Department of Economics.
  18. 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., John Wiley & Sons, Ltd., vol. 23(5), pages 671-682.
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