Abstract
ABSTRACT This study investigates the impact of economic growth of a country on the growth of neighbouring countries closely tied through trade and foreign direct investment in Europe. Empirical results show that a country’s growth has a significantly positive impact on the growth of its neighbouring countries. However, the impact is transitionary without affecting the steady-state growth of a country significantly. This study suggests that countries included in spatial econometrics should be limited to the countries with meaningful relationship. Spatial effect could be misspecified and overstated if it is included as steady-state growth factor in a growth model.
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