Public investment and regional growth and convergence: Evidence from Greece**We are grateful to the special issue editors and to the anonymous referees for their helpful suggestions to earlier versions of this paper. An earlier version of the paper was presented at the ERSA Conference in Barcelona in 2011. The research leading to this paper has benefited from the support of the European Research Council under the European Union's Seventh Framework Programme (FP7/2007†2013)/ERC grant agreement no 269868 and of a Leverhulme Trust Major Research Fellowship. The research is also part of the Prociudad†CM programme and of the UK Spatial Economics Research Centre. The views expressed are those of the authors and do not necessarily represent those of the funders

This paper estimates the impact of public investment on regional economic growth and convergence at the NUTS 3 level in Greece. Using a new database of public expenditure per region for the period 1978–2007, it proposes a model which captures not just the impact of public investment in Greek prefectures, but also the spillover effects related to the existence of externalities from neighbouring regions. The results point to a positive long†run impact of public investment per capita on regional economic growth – but not on convergence – which also generates considerable spillover effects. However, the returns vary according to different types of public investment, with education and infrastructure spillovers having the highest impact. In general, public investment externalities seem to be more relevant for regional growth than direct public investment in each region. Finally, the impact of different types of public investment in Greece is mediated by politics and political factors, but the effect of politics disappears once we control for political†period†specific spatial†invariant variables.