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Regional Income Convergence in Europe, 1995-2000: A Spatial Econometric Perspective

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  • Fischer, Manfred M.
  • Stirböck, Claudia

Abstract

Questions of convergence have received increasing attention in recent years, in light of the pressure for greater integration and enlargement of the European Union [EU] to countries in Central and Eastern Europe [CEE]. This paper looks at the evidence for convergence of per capita income between regions in Europe in the second half of the 1990s, when economic recovery in CEE gathered pace. The analysis is based on the simplest of the models, the unconditional ß-convergence model and shows that the classical test methodology is ill-designed due to two reasons. First, it cannot identify groupings of regional economies that are converging. Second, it neglects spatial effects that represent interregional interactions and spatial spillovers. The paper suggests a much richer and theoretically more satisfactory approach that is in line with both the notions of club convergence and spatial dependence, and reflects recent developments in spatial econometrics. The two-club spatial error convergence model with groupwise heteroskedasticity is found to be most appropriate for the data at hand. Two empirical key findings are worthwhile to note. The first is that the data provide much support for unconditional beta-convergence in Europe. The second is that the usual convergence conclusions hold. But they do so for reasons that are not revealed by the classical test equation that is typical in mainstream economics literature.

Suggested Citation

  • Fischer, Manfred M. & Stirböck, Claudia, 2005. "Regional Income Convergence in Europe, 1995-2000: A Spatial Econometric Perspective," MPRA Paper 77784, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:77784
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    1. Montresor, Elisa & Pecci, Francesco & Pontarollo, Nicola, 2011. "The convergence process of the European regions: the role of Regional Policy and the Common Agricultural Policy," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 113(2), pages 1-11.

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    More about this item

    Keywords

    European regions; income convergence; spatial econometrics;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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