Economic growth, competitiveness and convergence in the European regions. A spatial model estimation

Abstract

In this paper, we test whether competitiveness matters for economic growth and regional convergence in the context of the European Union. We employ the Regional Competitiveness Index (RCI), the 2013 version, computed by the European Commission as a proxy for competitiveness and data on regional GDP per capita, for the period 2000-2013.We test several cross-section spatial models, controlling for the beta –convergence and we estimate the relationship for the 247 NUTS2 European regions and separately for 189 UE15 regions and 56 CEE regions. We control for spatial autocorrelation by employing either a spatial error model (SEM) or spatial lag model (SLM). When both beta-convergence and spatial dependence is accounted for, the relationship between RCI and growth becomes highly significant. When separate models are estimated for CEE and EU15, no relation is found in the case of EU15 regions. In the case of CEE regions, RCI is significant for growth (at a 10% level), when a beta-convergence model with spatial lag is considered. Our results also show that although a convergence process is indeed taking place at a Community level, there is a divergence process emerging within the EU15 regions and a lack of convergence in the CEE regions.