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

  • Jesus Crespo Cuaresma

    ()

  • Martin Feldkircher

    ()

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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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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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Carmen Fernandez & Eduardo Ley & Mark Steel, 2001. "Model uncertainty in cross-country growth regressions," Econometrics 0110002, EconWPA.
  6. 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.
  7. repec:cup:cbooks:9780521725200 is not listed on IDEAS
  8. Ley, Eduardo & Steel, Mark F. J., 2007. "On the effect of prior assumptions in Bayesian model averaging with applications to growth regression," Policy Research Working Paper Series 4238, The World Bank.
  9. 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.
  10. Carmen Fernandez & E Ley & Mark F J Steel, 2004. "Benchmark priors for Bayesian models averaging," ESE Discussion Papers 66, Edinburgh School of Economics, University of Edinburgh.
  11. Xavier Sala-i-Martin, 1994. "Regional cohesion: Evidence and theories of regional growth and convergence," Economics Working Papers 104, Department of Economics and Business, Universitat Pompeu Fabra.
  12. Gernot Doppelhofer & Ronald I. Miller & Xavier Sala-i-Martin, 2000. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (Bace) Approach," OECD Economics Department Working Papers 266, OECD Publishing.
  13. 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.
  14. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  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. Peter Egger & Michael Pfaffermayr, 2006. "Spatial convergence," Papers in Regional Science, Wiley Blackwell, vol. 85(2), pages 199-215, 06.
  17. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  18. James LeSage & R. Kelley Pace, 2010. "Spatial Econometrics," Book Chapters, in: Web Book of Regional Science Regional Research Institute, West Virginia University.
  19. Niebuhr, Annekatrin, 2000. "Convergence and the effects of spatial interaction," HWWA Discussion Papers 110, Hamburg Institute of International Economics (HWWA).
  20. 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.
  21. 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.
  22. repec:cup:cbooks:9780521898010 is not listed on IDEAS
  23. J. Barkley Rosser, 2009. "Introduction," Chapters, in: Handbook of Research on Complexity, chapter 1 Edward Elgar.
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