Regional Convergence Clubs in Europe: Identification and Conditioning Factors

Abstract

The aim of this paper is to empirically identify convergence clubs in per capita incomes of European regions and to investigate whether initial conditions - as suggested by the club convergence hypothesis - are responsible for club formation. To tackle this issue, we propose a two-step procedure in which we first endogenously identify groups of regions that converge to the same steady state level, and in a second step we investigate the role of starting conditions and structural characteristics for a region's club membership. Our sample comprises 206 European NUTS2 regions between 1990 and 2005. The results strongly support the existence of convergence clubs, indicating that European regions form five separate groups converging to their own steady state paths. Moreover, estimates from an ordered probit model reveal that the level of initial conditions such as human capital and per capita income plays a crucial role in determining the formation of convergence clubs among European regions.