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

This doctoral thesis provides a neoclassical spatial growth model in order to examine economic growth in a system of N regional economies. It contributes to the current state of art in two ways: firstly, it allows for interregional fixed capital relocations by considering direct investments, and secondly it considers the relative location of economies in space as one determinant of factor movement. The thesis derives identical steady states of the factors physical capital and human capital as well as output for the system of N economies in equilibrium, and shows that both convergence and divergence processes may occur during transition periods. Moreover, regional endowment with human capital is found to influence the evolution of output levels, in combination with the connectivity between regions. Using a spatial econometric model specification, the theoretical model is tested with 255 European regions for the observation period 1995 to 2004. It is shown that growth in regional economies is essentially dependent on the regions’ own factor endowments as well as on those of neighboring economies.