Regional Convergence in the European Union (1985-1999): A Spatial Dynamic Panel Analysis
28 Pages Posted: 29 Apr 2003
Date Written: 2002
Abstract
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.
Keywords: growth, convergence, spatial dependence, spatial filtering, dynamic panels, GMM
JEL Classification: C23, O00, R11
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