Bayesian Model Averaging in the Studies on Economic Growth in the EU Regions – Application of the gretl BMA package

Abstract

(ProQuest: ... denotes formulae omitted.)IntroductionEconomic growth has been one of the most important economic issues in literature since the 1980s. Evolution of theoretical concepts and empirical studies on economic growth have resulted in a considerable broadening of the research scope, which was initially dominated by changes occurring at the level of entire economies. The interaction between theoretical concepts and empirical studies has gradually moved the research focus from the macroeconomic level to lower levels of economies' aggregation. One of these levels is the region, as seen in the NUTS (Nomenclature d'unit'es Territoriales Statistiques) classification. The status of a region as a territorial, economic and social unit has grown along with the enlargement of the European Union and the emergence of CohesionPolicy, which promotes the rectification of disparities between regions, in particular in the countries with lower levels of development.This paper falls into the mainstream of regional studies on economic growth and it tries to answer the recurring question: what are the determinants of economic growth at the regional level. The authors assume that the determinants of economic growth of a region are closely related to the stage of country's development level. Accurate identification of the factors that influence the pace of economic growth is among the most significant challenges contemporary theories of economics and economic policy are facing. The time frame here involves the selected years in the period 1997-2011. Thus, changes that occurred over the period from the turn of the 20th century until the global financial crunch could be identified. The selection of this period was also determined by the availability of statistical data (from the Eurostat). The foundation for the study was provided by the database developed by its authors for 222 regions of 16 economies within the EU (EU-15 plus Poland). Using the BMA (Bayesian Model Averaging) method a group of explanatory variables was proposed to determine potential factors responsible for differences in regional averages of GDP growth rate under a dynamic approach. The Bayesian approach was previously used in author's research Gazda and Puziak (2013) as well Blazejowski and Kwiatkowski (2013) and also in the economic studies by Simionescu et al. (2016 a) to identify the relationship between migration and economic growth and by Simionescu (2016) to select the determinants of permanent migration in Romania. The Bayesian methods are good alternatives to traditional methods used, for example, by Albu (2013) to select foreign trade and FDI as determinants of economic growth or by Albu (2006) and also Albu and Roudoi (2003) to study the relationship between economic growth, investment and interest rate. Cetin and Dogan (2015) supported the human capital-based growth hypothesis using ARDL bounds testing approach.The Bayesian approach has the main advantage of solving the problem of small sets of data. This disadvantage might also be solved by other modern approaches. For example, Ruiz et al. (2016) used panel data models to analyze the relationship between economic growth and intangible capitals while Kilic and Arica (2014) used panel data models to assess the impact of economic freedom and inflation rate on economic growth. The effects on value added taxes on economic growth in the CEE countries were assessed by Simionescu and Albu (2016) using panel data models and the Bayesian approach. Moreover, Simionescu (2016 b) used Bayesian panel data models to analyze the relationship between economic growth and FDI.1.Objective and scope of studyThe objective of this article is to diagnose the determinants of economic growth among the EU regions on the basis of Bayesian methods. The study was conducted on the basis of data describing the statistical units of individual states. The analysis of economic growth determinants is to answer the question of what are the sources of economic growth among the EU regions. …