Regional Income Disparities and Convergence: Does Spatial Dependence Matter?

The paper deals with exploring regional economic growth, income disparities and convergence in the countries of the European Union. Overall, 861 regions – mainly at the regional level NUTS-3 – of the EU enlarged in May 2004 are analyzed for the period 1995 2003. Spatial econometric methods are applied in order to identify existing spatial interaction and to control effects of spatial autocorrelation. The estimators confirmed that that there is spatial dependence between observations. The results of the analysis show that poorer regions mainly situated in the European periphery have tended to grow faster than the relatively rich European core regions. However, this catching-up process has been painfully slow and it has been driven mainly by national factors. Particularly, national growth rates in the new member states (NMS) have been dominated by very dynamic metropolitan areas. The forces that drive regional convergence seem to have not yet prevailed in NMS. If it can be expected that the dynamics of growth centers in the NMS spillover to rural, more remotely situated and poor regions it might be inefficient to support only those regions with low income levels.