Club-convergence analysis provides a more realistic and detailed picture about regional income growth than traditional convergence analysis. This paper presents a spatial econometric framework for club-convergence testing that relates the concept of club-convergence to the notion of spatial heterogeneity. The study provides evidence for the club-convergence hypothesis in cross-regional growth dynamics from a pan-European perspective. The conclusions are threefold. First, we reject the standard Barro-style regression model which underlies most empirical work on regional income convergence in favour of a two regime [club] alternative in which different regional economies obey different linear regressions when grouped by means of Getis and Ord's local clustering technique. Second, the results point to a heterogeneous pattern in the pan-European convergence process. Heterogeneity appears in both the convergence rate and the steady-state level. But, third, the study also reveals that spatial error dependence introduces an important bias in our perception of the club-convergence and shows that neglect of this bias would give rise to misleading conclusions.

The paper analyses the degree of output persistence in GDP in order to empirically discriminate between the Solow growth model, the perfect competition endogenous growth model, the imperfect competition endogenous growth model, and the subcase of a multiple equilibria model of endogenous growth for the case of Austria. We find that a temporary shock in the growth rate of output induces a permanent and larger effect on the level of GDP. This leads us to refute the Solow growth model and the perfect competition model. We find strong empirical support for the imperfect competition growth model, but cannot fully rule out the possibility of multiple equilibria growth rates. / Series: Department of Economics Working Paper Series

The current and projected low fertility levels for Europe and the continuous increases in life expectancy imply that the region will go through an unprecedented process of population aging, leading to sizeable changes in the age structure of European societies. After reviewing the existing literature on the role played by demographic change as a determinant of economic growth and income convergence, with a focus on the European experience, we analyze the quantitative impact of the projected changes in the age and education composition of the labor force. Using newly available demographic projections, we show that the current demographic trends are expected to cause a slowdown in the speed of income convergence across European countries. Our projection exercise suggests that policies aimed exclusively at improving labor force participation do not appear to be sufficient to counteract the negative effects of aging on income convergence. Instead, we show that reducing the educational attainment gap between Central and Eastern European member states and the rest of the European Union in addition to increasing labor force participation leads to an accelerated pace of income convergence.

This paper uses Bayesian model comparison methods to simultaneously specify both the spatial weight structure and explanatory variables for a spatial growth regression involving 255 NUTS 2 regions across 25 European countries. In addition, a correct interpretation of the spatial regression parameter estimates that takes into account the simultaneous feed- back nature of the spatial autoregressive model is provided. Our findings indicate that incorporating model uncertainty in conjunction with appropriate parameter interpretation decreased the importance of explanatory variables traditionally thought to exert an important influence on regional income growth rates. (authors' abstract)

This paper explores the contribution of knowledge capital to total factor productivity differences among regions within a regression framework. The dependent variable is total factor productivity, defined as output (in terms of gross value added) per unit of labour and physical capital combined, while the explanatory variable is a patent stock measure of regional knowledge endowments. We provide an econometric derivation of the relationship, which in the presence of unobservable knowledge capital leads to a spatial regression model relationship. This model form is extended to account for technological dependence between regions, which allows us to quantify disembodied knowledge spillover impacts arising from both spatial and technological proximity. A six-year panel of 198 NUTS-2 regions spanning the period from 1997 to 2002 was used to empirically test the model, to measure both direct and indirect effects of knowledge capital on regional total factor productivity, and to assess the relative importance of knowledge spillovers from spatial versus technological proximity. (authors' abstract)

This paper explores the contribution of knowledge capital to total factor productivity differences among regions within a regression framework. We provide an econometric derivation of the relationship and show that the presence of latent/unobservable regional knowledge capital leads to a model relationship that includes both spatial and technological dependence. This model specification accounts for both spatial and technological dependence between regions, which allows us to quantify spillover impacts arising from both types of interaction. Sample data on 198 NUTS-2 regions spanning the period from 1997 to 2002 was used to empirically test the model, to measure both direct and indirect effects of knowledge capital on regional total factor productivity, and to assess the relative importance of knowledge spillovers from spatial versus technological proximity. (authors' abstract)

This paper uses Bayesian Model Averaging (BMA) to find robust determinants of economic growth in a new dataset of 255 European regions between 1995 and 2005. The paper finds that income convergence between countries is dominated by the catching-up of regions in new member states in Central and Eastern Europe (CEE), whereas convergence within countries is driven by regions in old EU member states. Regions containing capital cities are growing faster, particularly in CEE countries, as do regions with a large share of workers with higher education. The results are robust to allowing for spatial spillovers among European regions.

This paper employs a spatial Durbin model for analyzing the impact of human capital on regional productivity using for 198 NUTS-2 European regions for the sample period from 1995 to 2004. The study provides evidence for the existence of spatial externalities and interactions of the sort as emphasized by new growth theory. To interpret results meaningfully, we calculate summary measures that account for the simultaneous feedback nature of the underlying model. By sampling from the parameter distribution we present measures of dispersion, revealing that it is relative regional advantages in human capital that matter most for productivity growth. (authors' abstract)

The aim of this paper is to analyze the pattern of speculation-led growth in Turkey. It is dependent on international capital flows, whose continuity becomes more and more critical given the current account deficit, which is estimated to reach 6.1% as a ratio to GDP at the end of 2005. The paper assesses the sustainability of this speculation-led growth in the context of EU enlargement and compares the current state of fragility with former crises in Turkey as well as in East Asia and Latin America. Following a severe financial crisis in 2001, Turkey has entered a new phase of fragile growth led by boom-euphoric expectations. The paper aims at explaining this new phase and the evolution of the risk perceptions of both the creditors as well as the debtors in this "speculation game" based on the post-Keynesian/Minskyan concepts of endogenous expectations and financial fragility. (author's abstract) / Series: Department of Economics Working Paper Series

The aim of this paper is to analyze the fragility of the New Member States and accession countries in the Central Eastern and South Eastern European countries (henceforth Eastern Europe) to the turbulences in the global economy and the changes in the direction of the international capital flows. (author's abstract) / Series: Department of Economics Working Paper Series