Regional dynamics of economic performance in the EU: to what extent do spatial spillovers matter?

Abstract

This paper investigates the main determinants of economic perfor- mance in the EU from a regional perspective, covering 253 regions over the period 2001-2008. In addition to the traditional determinants of economic performance, measured by GDP per capita, the analysis accounts for spatial effects related to externalities from neighbouring regions. The spatial Durbin random-effect panel speci cation captures spatial feedback effects from the neighbours through spatially lagged dependent and independent variables. Social-economic environment and traditional determinants of GDP per capita (distance from innovation frontier, physical and human capital and innovation) are found to be signi cant. Overall, our ndings con rm the signicance of spatial spillovers, as business investment and human capital of neighbouring regions have a positive impact -both direct and indirect- on economic performance of a given region.