Productivity Growth in the Old and New Europe: The Role of Agglomeration Externalities

Abstract

The recent history of Europe is characterized by a dual picture showing the Old and New countries in sharp contrast with respect to their industrial specialisation and economic performance. We aim at analyzing the intertwined performance of regions and industries in New and Old European economies by investigating the effects of local agglomeration externalities (mainly specialisation and diversity externalities) on total factor productivity dynamics. More specifically, we analyse whether the agglomeration externalities effects vary according to the development stage (Old vs New Europe), the specialisation pattern (low-tech manufactures vs knowledge intensive sectors) and the settlement typology (urban vs rural areas). We also analyse the potential influence of regional intangible assets such as human and technological capital. The econometric analysis is carried out over the period 1996-2007 for 13 industries located in the 276 regions of the EU27 member countries and it makes use of spatial econometric techniques to take into account the possibility of cross-border externalities.

Keywords: Agglomeration externalities, Local industry growth, Total Factor Productivity, Spatial models, European regional cohesion

JEL Classification: C31, O47, R11