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Regional convergence in the European Union (1985 - 1999) : a spatial dynamic panel analysis

  • Badinger, Harald
  • Müller, Werner G.
  • Tondl, Gabriele

We estimate the speed of income convergence for a sample of 196 European NUTS 2 regions over the period 1985-1999. So far there is no direct estimator available for dynamic panels with strong spatial dependencies. We propose a two-step procedure, which involves first spatial filtering of the variables to remove the spatial correlation, and application of standard GMM estimators for dynamic panels in a second step. Our results show that ignorance of the spatial correlation leads to potentially misleading results. Applying a system GMM estimator on the filtered variables, we obtain a speed of convergence of 6.9 per cent and a capital elasticity of 0.43.

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Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 210.

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Date of creation: 2002
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Handle: RePEc:zbw:hwwadp:26329
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