European Regional Growth Research Articles

The spatial dimension of ageing and growth in European regions

AbstractThis study aims to tackle the potential effects of population ageing on regional growth dynamics in the EU. We collected information at a NUTS2 level for EU countries from the years 2000 to 2020 to understand the extent to which the ageing of EU society might impact the EU convergence process. Our results emphasize that the ageing of EU society does not seem to harm the possibility of regional economic growth if we think that immigrants can fill openings in local labour markets (left by retired persons), as well as new jobs stemming from new services needed by retired persons (mostly in health and daily care). Our outcomes also stress the relevance of considering the spatial dimension of the analysis to detect the place-based dimension of this dynamic and, hence, the need for tailored policies.

Digital transition in a turbulent world: European regional growth opportunities in 17 years' time

ABSTRACT Recently, the digital transition has been highlighted as a strategy fostering economic competitiveness. How the advantages from the digital transition will distribute over time and space is still unclear. This paper builds scenarios comparing the effects of a digital transition. Technological assumptions are consistently related to the assumptions on other structural changes. The internal coherence among assumptions is guaranteed by a larger overarching framework based on how the geopolitical context will evolve. A deeper within-EU integration and global cooperation, or a fragmented Europe torn in a world polarized in two blocs, enhance the digital transition and the main structural changes in different ways. Qualitative assumptions, validated through a Delphi analysis, are translated into quantitative ones and included in our MAcroeconometric, Social, Sectoral, Territorial 5 (MASST5) model, a regional macro-econometric forecasting model, through which simulations of GDP growth rates at regional (NUTS2) level are simulated for the period 2021–2038. Results show that if the digital investment plans stimulate growth, they only partially reverse regional growth divergence trends caused by advantages stemming from an integrated market, even if distributed with the aim of closing the digital gap among European countries.

A joint spatial econometric model for regional FDI and output growth.

This paper studies the joint dynamics of foreign direct investments (FDI) and output growth in European regions by using spatially augmented systems of equations modeling framework that incorporates third-region and spillover effects. The joint framework is used to study the dynamic impacts of regional human capital endowments, which demonstrates the importance of explicitly accounting for an endogenous relationship. The relationship is highlighted in a stylized projection exercise, where the long-run impacts are pronounced in Eastern Europe and capital cities. Overall, ignoring the relationship of regional economic performance and FDI distorts the implied transmission mechanism, which is of utmost importance for policy makers.

Regional early-stage entrepreneurship in the European Union

Purpose: Entrepreneurship is often viewed as a driver of the global economy. However, previous research on the relationship between entrepreneurship and economic growth shows contradictory results depending on the research settings. The purpose of this paper is to investigate how early-stage entrepreneurship - including only enterprises that are less than three and a half years old - affects regional economic growth in the European Union. Methodology: The methodology includes three methods: bivariate correlation, fixed effects regression with region and time fixed effects and spatial fixed effects regression. The panel sample consists of 273 NUTS 2 regions between 2008 and 2017. Results: The results support the hypothesis of this research and show that early-stage entrepreneurship has a mild positive effect on the economic growth of European regions. However, the potential bidirectional nature of this relationship obliterates the ability to comment on the causality of this link. The percentage of people in the active population employed in human resources in science and technology and gross fixed capital formation have a significant and impactful effect on regional GDP. Conclusion: The conclusion can be drawn that the effect of early-stage entrepreneurship on regional economic growth is conditioned by the population density of the region. Although these results show that enterprises founded in densely populated areas such as cities and metropolitan areas tend to have a larger effect on the regional economy, the results are ambiguous.

Financial development and growth in European regions

AbstractWe study the relationship between financial development and economic growth across 110 European regions from 1997 to 2018. We single out two dimensions of financial development in the data capturing the capillarity of bank branches and the agglomeration of the financial industry at large and study their relationship with regional economic growth. To establish a causal nexus, we employ two‐ways fixed effects, instrumental variables, and the Arellano–Bond estimator. Our estimates indicate that what matters the most for regional economic growth is the agglomeration of a complex financial sector rather than the mere presence of bank branches.

Building an ANFIS-Based Decision Support System for Regional Growth: The Case of European Regions

This paper proposes an adaptive network fuzzy inference system (ANFIS) based decision support system that can provide European policy makers with systematic guidance in allocating and prioritizing scant public resources, whilst accomplishing the best growth performance at a regional level. We do so by taking the stance of the Smart Specialization Strategies, which aim at consolidating the regional strengths and make effective and efficient use of public investment in R&D. By applying the ANFIS method, we were able to understand how - and to what extent - the competitiveness drivers promoted technological development and how the latter contributes to the economic growth of European regions. We used socio-economic, spatial, and patent-based data to train, test, and validate the models. What emerges is that an increase of R&D investments enhances the regional employment rate and the number of patents per capita; in turn, by taking into account the several combinations of specialization and diversification indicators, this leads to an increase of the regional gross domestic product (GDP).

Harnessing cross-region disparities to assess the impact of tourism on regional growth in Europe

ABSTRACT We use regional data across 27 European countries and look into the effect of tourist arrivals on regional growth during 2000–2017. The research is set in an augmented Solow model estimated via a rich and flexible empirical strategy, with different underlying assumptions about the impacts of the regressors and unobservables. A first demarcation line across our set of estimators is between the ‘pooled’ estimators (assuming common parameters across regions) and the ‘heterogeneous’ ones (allowing for region-specific parameters). An additional axis of differentiation lies in the way the impact of unobservables is accounted for via the estimation method: some methodologies hypothesize a common impact of the latter across space, while others make room for a possible differentiated effect over the regions. Among the pooled estimators, our preferred one reveals a positive and significant contribution of tourism to regional growth. Among the heterogeneous estimators, our favored one corroborates the previous result and uncovers vast regional disparities in terms of the effect of tourist arrivals on growth. A preliminary investigation suggests that regions endowed with a large share of highly educated population experienced the greatest growth-impact of tourist arrivals.

THE IMPACT OF INNOVATION, KNOWLEDGE SPILLOVERS AND OIL PRICES ON ECONOMIC GROWTH OF THE REGIONS OF KAZAKHSTAN

The study of impact of innovation and diffusion of knowledge for economic growth of European regions and other developed countries is increasingly attracting attention of scientists. Along with this, there are many studies for impact of world economic growth of oil prices. At the same time, there is an insufficient attention to joint assessment and comparative analysis of effectiveness of these internal and external growth factors. Moreover, this important issue has been studing a little in relation to countries with economies in transition. This paper is devoted to the study of the impact of innovation and the knowledge spillover in combination with an assessment of the impact of fluctuations in the world oil price on economic growth of regions of Kazakhstan. Catching-up development models are constructed according to annual data from 2005 to 2016 for 16 regions of Kazakhstan. Calculations based on the panel data with fixed effects have confirmed that costs of technological innovations, their spillovers between regions, healthcare costs, as well as the growth rate of the world oil price positively influenced for economic growth in regions. Moreover, socio-economic conditions reinforced their positive impact on growth. It has established that changes in the world oil price and costs of technological innovations and their spillovers between regions effects at the same order, and impact of health care costs and socio-economic conditions on regional growth is noticeably weaker. The results of the study confirm that for innovation activity is essential for the economic growth of the oil exporting country as well. Keywords: oil prices, R&D, innovations, knowledge spillovers, regional growth, Kazakhstan JEL Classifications: C33, O11, O32, O40 DOI: https://doi.org/10.32479/ijeep.9034

The Elusive Quest for the Holy Grail of an Impact of EU Funds on Regional Growth

We analyze the impact of EU structural and cohesion funds on economic growth of European regions, using 2SLS to tackle the potential problem of endogeneity, and estimating a spatial model to account for inter-regional spillovers. We use the presence of environmentally protected areas (under the European Union’s Natura 2000 program) as instruments for the receipts of funds from the EU Cohesion Policy. We find that the European funds have a significant and positive effect on regional economic growth in the EU. The inter-regional spillovers in the effect of Cohesion Policy on regional growth are found to be important: most of the effect takes place outside of the recipient region rather than inside. However, there is considerable heterogeneity in the effect of Cohesion Policy across individual EU member states: the effect is stronger in the new member states, and weak or negative in the countries hit by the recent austerity measures. Finally, our results confirm the positive impact of institutional quality: improvements in economic development across the EU do not necessarily require only redistribution: institutional reform can also help boost growth performance.

Specialisation in key enabling technologies and regional growth in Europe

ABSTRACTThis paper explores the specialisation of European Union (EU) regions in key enabling technologies (KETs) and assesses whether or not being specialised in these technological areas has an effect on regional growth. The evidence presented shows that regions specialised in KETs are concentrated in central Europe; however, over the period taken into account (1996–2011), less innovative and peripheral EU regions have been increasing their specialisation in these technological areas at the expense of the most advanced regions. There is also evidence that (spatial) diffusion of KETs often occurs across regions contiguous to each other. The results of the econometric estimations show that being specialised in KETs affects regional economic growth (per capita gross domestic product) and that this effect is stronger in the case of less innovative EU regions. Overall, these results hint at the pervasive nature and enabling role of KETs and demonstrate the importance for EU regions to target these technologies as part of their smart specialisation strategies.

Spatial Clusters in EU Productivity Growth

AbstractIn the last year, a central issue in regional economic growth debate has been represented by the empirical analysis of Verdoorn's law related to the long‐term dynamic relationship between the rate of growth in output and the productivity growth due to increasing returns. Several papers have tested Verdoorn's law on European countries as well as many other world economies. Recently, attempts have been made to provide foundations for a spatial version of the original law specification. The main contributions were dedicated to the inclusion of spatial dependence in the economic model. Surprisingly, in the literature on Verdoom's law the analysis of the spatial heterogeneity is not often considered. The aim of this paper is the regional analysis of the spatial dependence and heterogeneity in Verdoorn's law, identifying spatial regimes that can be interpreted as clusters of productivity growth in European regions at NUTS 2 level. To pursue this objective, an optimization algorithm for the identification of groups is used. This constitutes a modified version of Simulated Annealing.

REGIONAL GROWTH, INNOVATION, AND LATENT NONLINEAR EFFECTS

ABSTRACTThis paper studies the link between knowledge, innovation, and growth in European regions using nonparametric methods. Our findings suggest that knowledge inputs and the share of innovative firms have a heterogeneous and nonlinear relationship with growth. This evidence has been exploited to examine the consequences of alternative policies using a counterfactual estimation setup, the results of which imply that increasing the formal knowledge base may be optimal in most regions. Less knowledge and innovation intensive regions will also benefit from a higher innovation potential and from a trustworthy and entrepreneurial economic environment.

Competitive network positions in trade and structural economic growth: A geographically weighted regression analysis for European regions

AbstractIn this paper, we introduce network dependence in European regional growth analyses in two new ways. First, we use detailed trade‐flow data across European regions to decompose regional economic growth into two components: demand‐led growth due to growing export markets and structural growth due to growing market shares in those export markets. Only structural growth, constituting on average approximately 20 per cent of total growth, is potentially affected by regionally varying locational characteristics. The second network novelty we introduce is revealed competition as a measure of regional network membership in the growth analysis. Applying a neo‐classical regional growth model using geographically weighted regression, we show that the degree of revealed competition in trade and services between sectors moderates regional structural growth. Regions operating on similar international markets share more favourable structural growth prospects, with locational determinants being more – albeit still limited – significant due to similar externalities. With regional characteristics being of limited sectoral and geographical importance for structural growth, our results suggest that the recently advocated place‐based development strategies of European regions should be complemented with competitive regional network strategies.

Bank Efficiency and Regional Growth in Europe: New Evidence from Micro-Data

This paper examines whether European regions which incorporate banks with a higher intermediation quality grow faster and are more resilient to negative shocks than its less efficient peers. For this purpose, we measure a bank's intermediation quality by estimating its pro t and cost efficiency while taking the changing banking environment after the financial crisis into account. Next, we aggregate the efficiencies of all banks within a NUTS 2 region to obtain a regional proxy for fi nancial quality in twelve European countries. Our results show that relatively more pro t efficient banks foster growth in their region. The link between fi nancial quality and growth is valid both in the pre-crisis and post-crisis period. These results provide evidence to the importance of swiftly restoring bank pro tability in euro area crisis countries through addressing high non-performing loans ratios and decisive actions on bank recapitalization. JEL Classification: G21, O16, O47, O52

Volatility and Regional Growth in Europe: Does Space Matter?

This paper examines the relationship between output volatility and regional growth in Europe. To that end, we present a spatially augmented stochastic growth model with technological interdependence among economies. Spatial externalities are used to model technological interdependence, which ultimately implies that the economic growth rate of a particular region is affected not only by its own degree of volatility but also by the output fluctuations experienced by the remaining regions. In order to investigate the empirical validity of this result, we examine the link between volatility and economic growth in a sample of 272 European regions over the period 1991–2011 using spatial econometric techniques. Our estimates show the existence of a negative and statistically significant relationship between volatility and economic performance in the European regions. This is partly due to the role played by spatial spillovers induced by volatility in neighbouring regions. The observed relationship is robust to the inclusion in the analysis of different explanatory variables that may affect both regional growth and business cycle fluctuations. We also check that our results do not depend on the measure or volatility used in the analysis or the econometric specification employed to capture the nature of spatial spillovers.

How higher education institutions contribute to the growth in regions of Europe?

Various studies show that higher education institutions contribute to regional economic development by R&D, creation of human capital, knowledge and technology transfer, and by creation of a favourable milieu. It is brought out that the basic procedure is to sum expenditures of the college community (students, faculty, staff and visitors) created by the presence of the institution and apply multipliers to account for the interdependency of economic activity in a local economy, resulting in an estimated ‘local economic impact'. The aim of the paper is to investigate the relationship between students in tertiary education and economic growth in NUTS 2 level in Europe from 1998 to 2008 by looking whether the share of tertiary students (measuring human capital) is correlated with the share of knowledge-intensive employment (KIE) in different regions. The increase in KIE is related to increasing levels of GDP per capita and R&D expenditures. Taking into account regional-level fixed effects, the share of tertiary students is not statistically significant. We found out that the increase in KIE is related to increasing levels of GDP per capita and R&D expenditures. The share of students five periods ago has a positive relation with the KIE: as we assumed, it takes time for the human capital to contribute to the economic development.

Does social capital matter for European regional growth?

This paper analyzes the role of different elements of social capital in economic growth for a sample of 85 European regions during the period 1995–2008. Despite the remarkable progress that social capital and European regional economic growth literatures have experienced over the last two decades, initiatives combining the two are few, and entirely yet to come for the post-1990s period. Recent improvements in data availability allow this gap in the literature to be closed, since they enable the researcher to consider the traditionally disregarded Eastern and Central European (ECE) regions. This is particularly interesting, as they are all transition economies that recently joined the European Union, with relatively low levels of social capital. On the methodological side, we follow the Bayesian paradigm, which enables us to make direct inferences on the parameters to be estimated and deal with parameter uncertainty, leading to a deeper understanding of the relationships being investigated. In particular, we analyze three indicators of social capital, namely social trust, associational activities and social norms. Results suggest that the two former might have some implications for regional growth while social norms are a weaker predictor for growth.

Ouverture de ‘Smart Specialisation, Global Markets and Innovation Policies’

Competition in global markets shapes a multi-dimensional space so that a given geographical context can imply the simultaneous presence of very different competitors. Research and innovation are acknowledged to play a key role in maintaining sustainable levels of growth and employment. Restoring sustainable growth will only be possible if the EU boosts competitiveness and promotes innovation in the industry and services sectors. In recent years, the so-called “smart specialisation” has assumed great importance in the policies for economic growth of European regions. The smart specialisation strategy defines itself as a flexible and dynamic innovation strategy for a new phase of development, which passes through the global transformation of the economic environment.

The Effects of Knowledge and Innovation on Regional Growth: Nonparametric Evidence

This paper studies the link between knowledge, innovation and growth in European regions using nonparametric methods. Our findings suggest that knowledge inputs and the share of innovative firms have a heterogeneous and nonlinear relationship with growth. This evidence has been exploited to examine the consequences of alternative policies using a counterfactual estimation setup, the results of which imply that increasing the formal knowledge base may be optimal in most regions. Less knowledge and innovation intensive regions will also benefit from a higher innovation potential and from a trustworthy and entrepreneurial economic environment. As a byproduct of our analysis, we show that the gradients obtained from a local-linear kernel regression can be used to identify clusters of spatial association.

Proximity and growth spillovers in European regions: The role of geographical, economic and technological linkages

This study examines the role of proximity in regional growth using a multi-dimensional framework, for seven EU countries during 1990–2005. We incorporate geographical as well as economic and technological effects in two seminal growth models in order to test for the existence and magnitude of interregional externalities. Our findings show that spillovers are important for European regional growth, regardless of the measure of proximity; thus regions surrounded by dynamic entities are likely to growth faster than otherwise. Moreover, our results underline the need for coordinated EU policies aiming at higher physical and human capital accumulation, taking into account regional synergies.