Regional dynamics of economic performance in the EU: To what extent do spatial spillovers matter?

Abstract

This paper investigates the main determinants of economic performance in the EU from a regional perspective, covering 253 regions over the period 2001-2008. In addition to the traditional determinants of economic performance, measured by GDP per capita, the analysis accounts for spatial effects related to externalities from neighbouring regions. The spatial Durbin random-effect panel specification captures spatial feedback effects from neighbouring regions through spatially lagged dependent and independent variables. The social-economic environment and traditional determinants of GDP per capita (distance from innovation frontier, physical as well as human capital and innovation) are found to be significant. Overall, our findings confirm the significance of spatial spillovers, as business investment and human capital of neighbouring regions have a positive impact – both direct and indirect – on economic performance of a given region.