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Agglomeration and Growth: Evidence from the Regions of Central and Eastern Europe

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  • Johanna Vogel

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Abstract

This paper examines the empirical relationship between agglomeration and economic growth for a panel of 48 Central and Eastern European regions from 1995 to 2006. By agglomeration, we mean the within-regional concentration of aggregate economic activity, which we measure using the 'topographic' Theil index developed by Bruelhart and Traeger (2005). A transitional growth specification à la Mankiw, Romer and Weil (1992) is augmented with this index and estimated using panel data methods that account for endogeneity and spatial dependence. Our empirical analysis provides evidence of a positive effect of agglomeration as measured by the topographic Theil index on long-run income levels. A one standard-deviation increase in agglomeration is estimated to raise steady-state income per capita by 15%. While this effect is sizeable, it may also imply a trade-off between regional development and within-regional equality for Central and Eastern Europe. Keywords: Agglomeration, regional growth, Central and Eastern Europe, spatial econometrics, panel data econometrics JEL codes: R11, R12, C23, O52

Suggested Citation

  • Johanna Vogel, 2012. "Agglomeration and Growth: Evidence from the Regions of Central and Eastern Europe," ERSA conference papers ersa12p1089, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa12p1089
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    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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