A Spatial Econometric Analysis of Geographic Spillovers and Growth for European Regions, 1980-1995
The aim of this paper is to consider the geographical dimension of data in the estimation of the convergence of European regions and to emphasize geographic spillovers in regional economic growth phenomena. In a sample of 138 European regions over the 1980-1995 period, we show that the unconditional b -convergence model is misspecified due to spatially autocorrelated errors. Its estimation by Ordinary Least Squares leads to inefficient estimators and invalid statistical inference.Using spatial econometric methods and a distance based weight matrix we then estimate an alternative specification, which takes into account the spatial autocorrelation detected and leads to reliable statistical inference. Moreover this specification allows us to highlight a geographic spillover effect: the mean growth rate of a region is positively influenced by those of neighboring regions. We finally show by a simulation experiment that a random shock affecting a given region propagates to all the regions of the sample.
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