Where in the U-shaped Curve Is Europe Found? An Empirical Analysis of Centre-Periphery in the E.U

This paper attempts to answer what determines the centre-periphery pattern in Europe at the current state of European integration – a fundamental question in the new economic geography (NEG) literature. After a brief overview of the underlying theoretical framework, per capita GDP, which is used as a measure of welfare, is regressed against a number of general “agglomeration”, as well as “urbanization” and “localization” variables, namely, population density (POP), proportion of employment in services (NS), proportion of industrial employment (NI), level of technology (S&T), expressed by human resources in science and technology, and extent of innovation (PAT), measured by the number of patents per inhabitant. The econometric analysis is cross-sectional and concerns 200 EU regions at NUTS II level. Both parametric (OLS and GMM) and non-parametric empirical findings show that agglomeration forces (approached generally by POP) and the “technology” indicators exert a significant influence on regional welfare, indicating that agglomeration and welfare reinforce each other and that the production structure of European regions is indeed found around the lower part of the famous, in the literature, U-shaped curve. Empirical findings point to the need of strengthening regional or other policies which could encourage the shift of economic activity to the European periphery, so that convergence in welfare levels can eventually be achieved.