Economic Growth in the Regions of Europe: Theory and Empirical Evidence from a Spatial Growth Model

136 Pages·2011·2.533 MB·English

by  Sascha Sardadvar (auth.)

Contributions to Economics
Forfurthervolumes:
http://www.springer.com/series/1262
Sascha Sardadvar
Economic Growth
in the Regions of Europe
Theory and Empirical Evidence
from a Spatial Growth Model
Asst.Prof.SaschaSardadvar
ViennaUniversityofEconomicsandBusiness
InstituteforEconomicGeographyandGIScience
DepartmentofSocioeconomics
Nordbergstraße15
1090Vienna,Austria
[email protected]
ISSN1431-1933
ISBN978-3-7908-2636-4 e-ISBN978-3-7908-2637-1
DOI10.1007/978-3-7908-2637-1
SpringerHeidelbergDordrechtLondonNewYork
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Preface
Thisbookisbasedonthedoctoralthesisofthesametitle,whichwascompletedin
April 2009. The study was inspired by the emphasis the European Union puts on
its various regions in general, and on the issues of regional development and con-
vergenceinparticular.Despitegrowinginterestregardingregionaleconomies,the-
oreticalapproachestomodellingregionalgrowthappearedunsatisfactoryandhave
motivated the approach adopted in the study. The work could not have been done
withoutencouragementandsupportfromfirstadvisorManfredM.Fischer,aswell
asconstructivesuggestionsandvaluableadvicefromsecondadvisorIngridKubin,
tobothofwhomtheauthorowesadebtofgratitude.Technicalassistancethroughout
the time of developing was provided by Monika Bartkowska, Judith Kast-Aigner,
AleksandraRiedl,PetraStaufer-SteinnocherandAnitaWolfartsberger,whosehelp
is greatly appreciated by the author. Special thanks for valuable comments go out
toRogerBivand,GerlindeFellner,WolfgangFellner,AlexiaFürnkranz-Prskawetz,
James LeSage, Thomas Scherngell and Achim Zeileis. Furthermore, the author
wouldliketothankMeaghanBurkeforproofreading,andBarbaraFeßforediting.
v
Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PartI TheoryofEconomicGrowth
2 NeoclassicalGrowthTheoryandStandardModels . . . . . . . . . 9
2.1 FromClassicaltoNeoclassicalGrowthTheory . . . . . . . . . 9
2.2 TheBasicOutlineofNeoclassicalGrowthModels . . . . . . . 12
2.3 TheSolutionwithTechnologicalProgress
andaCobb-DouglasProductionFunction . . . . . . . . . . . . 15
2.4 HumanCapitalasanAdditionalFactorofProduction . . . . . . 18
3 GrowthModelswithSpatialExternalities . . . . . . . . . . . . . . 23
3.1 ANeoclassicalGrowthModelwithIdenticalSteadyStates . . . 23
3.2 ANeoclassicalGrowthModelwithDifferentSteadyStates . . . 25
4 Convergence:TheoryandEvidence . . . . . . . . . . . . . . . . . . 29
4.1 ConvergenceandDisparitiesofNationalEconomies . . . . . . 30
4.2 TheFormalDerivationofaConvergenceEquation . . . . . . . 34
4.3 EmpiricalTestsofConvergence,Conclusions
andUnsolvedQuestions . . . . . . . . . . . . . . . . . . . . . 38
PartII AModelofRegionalGrowth
5 RemarksonRegionalGrowth . . . . . . . . . . . . . . . . . . . . . 45
5.1 AgglomerationEffects,IncreasingReturnsandPolarisation . . 45
5.2 ReconsideringSavingandGrossInvestment. . . . . . . . . . . 48
5.3 ForeignCapital,ItsMobilityandtheRoleofHumanCapital . . 50
6 StructureoftheModel . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.1 DefinitionsandAssumptions . . . . . . . . . . . . . . . . . . . 53
6.2 TheProductionFunction . . . . . . . . . . . . . . . . . . . . . 55
6.3 ChangesofInputstoProduction . . . . . . . . . . . . . . . . . 59
7 EvolutionofFactorsandOutput . . . . . . . . . . . . . . . . . . . 65
7.1 SteadyStates . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
vii
viii Contents
7.2 SimulationResults . . . . . . . . . . . . . . . . . . . . . . . . 68
7.3 FormalDerivations . . . . . . . . . . . . . . . . . . . . . . . . 75
8 ImplicationsforOutputGrowth . . . . . . . . . . . . . . . . . . . 79
8.1 TaylorApproximation . . . . . . . . . . . . . . . . . . . . . . 79
8.2 SolutionforOutputGrowth . . . . . . . . . . . . . . . . . . . 82
8.3 SummaryandOutlook . . . . . . . . . . . . . . . . . . . . . . 85
PartIII Empirics
9 Regions,VariablesandData . . . . . . . . . . . . . . . . . . . . . . 91
9.1 ObservationUnits,ObservationPeriodandDistanceMeasures . 91
9.2 Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
9.3 AnIllustrationofRecentDevelopments . . . . . . . . . . . . . 98
10 SpatialEconometricSpecificationandEstimation . . . . . . . . . . 105
10.1 SpatialEconometricModels . . . . . . . . . . . . . . . . . . . 105
10.2 TheModelSpecification . . . . . . . . . . . . . . . . . . . . . 107
10.3 MaximumLikelihoodEstimation . . . . . . . . . . . . . . . . 109
11 TestingtheTheoreticalModel . . . . . . . . . . . . . . . . . . . . . 111
11.1 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
11.2 InterpretationandConcludingRemarks . . . . . . . . . . . . . 114
12 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Appendix1: RegionsoftheObservationArea . . . . . . . . . . . . . 121
Appendix2: SupplementaryEconometricResults . . . . . . . . . . . 125
Appendix3: Intra-stateDevelopments1995to2004 . . . . . . . . . 127
Appendix4: ListofSymbols . . . . . . . . . . . . . . . . . . . . . . 131
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
List of Figures
2.1 Capitalstockperlabourunitinequilibrium . . . . . . . . . . . . . 14
2.2 Steadystatepercapitagrowthofoutput . . . . . . . . . . . . . . . 17
2.3 Anincreaseinthesavingrate . . . . . . . . . . . . . . . . . . . . 18
2.4 ThedynamicstabilityoftheMankiw-Romer-Weilmodel . . . . . . 21
4.1 GDPpercapitaatPPSfrom1820to2000ofsixareas . . . . . . . . 30
4.2 Share of world output of seven economic blocs and
associatedcountriesin1970and2005 . . . . . . . . . . . . . . . . 32
4.3 Relative output per capita of seven economic areas and
blocs,1970–2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.1 Longrundevelopmentofoutput . . . . . . . . . . . . . . . . . . . 70
7.2 Medium run development of regions with low initial
outputlevels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
7.3 Medium run development of regions with high initial
outputlevels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
7.4 Mediumrundevelopmentcomparedtoclosedeconomies . . . . . . 73
7.5 Mediumrundevelopmentinsomespecialcases . . . . . . . . . . . 74
9.1 RelativeGRPpercapita,1995 . . . . . . . . . . . . . . . . . . . . 100
9.2 RelativeGRPpercapita,2004 . . . . . . . . . . . . . . . . . . . . 101
9.3 AverageannualGRPgrowthpercapita,1995–2004 . . . . . . . . . 102
9.4 GRP-position changes in the ranking of 255 regions in
Europe,1995–2004 . . . . . . . . . . . . . . . . . . . . . . . . . . 104
11.1 Regionaldisparitieswithincountries,2004 . . . . . . . . . . . . . . 115
ix
List of Tables
9.1 ThresholdsforNUTSregionsandexamples . . . . . . . . . . . . . 93
9.2 Summaryofdata1995 . . . . . . . . . . . . . . . . . . . . . . . . 99
9.3 Summaryofdata2004 . . . . . . . . . . . . . . . . . . . . . . . . 99
9.4 Outputdistribution1995–2004 . . . . . . . . . . . . . . . . . . . . 103
11.1 Estimationresultswithgrossregionalproductpercapita . . . . . . 112
11.2 Estimation results with gross value added per gainfully
activeperson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
xi
Chapter 1
Introduction
Some decrease, others persist or even widen: regional disparities continue to con-
stitute one of the major challenges for European economic policy. The accession
of twelve countries to the European Union (EU) on May 1, 2004 and January 1,
2007hasledtotwomajorstatisticaleffects,namelyadecreaseinthegrossdomestic
product(GDP)percapitaoftheEuropeanUnion,andanincreaseinthegapbetween
themostandtheleastdevelopedregions.Therelativeimportanceofstructuralpol-
icy is reflected in the financial allocation in the current financial framework for
2007–2013:ofatotalbudgetof864billioneuros(price-levelof2004),308billion
euros are set aside for cohesion policy (European Council 2006, Article 19). Of
these,251billioneuros(EuropeanCouncil2006,Article19)areprovidedto“pro-
motegrowth-enhancingconditionsandfactorsleadingtorealConvergenceforthe
least-developed Member States and regions” (European Commission 2006, p. 2,
uppercasesintheoriginal),ofwhich153billioneurosaredestinedforthetwelve
newmemberstatesandtheirregions(EuropeanCommission2006,p.3).
The origins of assistance for less developed regions lie in the Treaty of Rome
(Treaty Establishing the European Economic Community, EEC Treaty), based
on which the European Investment Bank was established in order to “facilitate
the financing of (...) projects for developing less developed regions” (European
Economic Community 1957, Article 130). Back in those days, however, the
EuropeanCommunity(EC)ofthensixmemberstateswasrelativelyevenlydevel-
oped, with the exception of the less productive Southern Italian regions. The
situationchangedwhentheUnitedKingdomandtheRepublicofIrelandjoinedthe
ECin1973,whichledtoasignificantincreaseinregionaldisparities.Nevertheless,
despite the Treaty of Rome’s declaration, it was not until 1975 that the European
Regional Development Fund was created, since an effective policy on regional
structureswasseenas“anessentialprerequisitetotherealizationofeconomicand
monetary union” (European Council 1975). The fund’s assistance was set to be
allocated according to the relative severity of regional imbalances. Regional dis-
paritiesintheEuropean Community increased again withtheaccession of Greece
in1981andthatofPortugalandSpainin1986.Thesecountries,togetherwiththe
RepublicofIrelandformingtheso-calledcohesioncountries,henceforthbenefited
fromsubstantialfinancialsupport.
S.Sardadvar,EconomicGrowthintheRegionsofEurope,ContributionstoEconomics, 1
DOI10.1007/978-3-7908-2637-1_1,(cid:2)C Springer-VerlagBerlinHeidelberg2011