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

Abstract

This paper adopts a spatial econometric perspective to analyse regional convergence of per capita income in Europe in 1995 to 2000 and, moreover, relaxes the assumption of a single steady-state growth path which appears to be out of tune with reality of empirical dynamics. 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.

Keywords: European Regions, Income Convergence, Spatial Econometrics

JEL Classification: C21, O52, R11, R15