Growth and Externalities Across Economies: An Empirical Analysis Using Spatial Econometrics

Abstract

Recent theoretical models of economic growth have emphasised the role of external effects on the accumulation of factors of production. Although most of the literature has considered the externalities across firms within a region, in this paper we go a step further and consider the possibility that these externalities cross the barriers of regional economies. We assess the role of these external effects in explaining growth and economic convergence. We present a simple growth model, which includes externalities across economies, developing a methodology for testing their xistence and estimating their strength. In our view, spatial econometrics is naturally suited to an empirical consideration of these externalities. We obtain evidence on the presence of significant externalities both across Spanish and European regions.