Endogenous processes in European regional growth: Convergence and policy

The traditional empirical approaches to the analysis of economic growth, cr oss-section and panel data regressions are substantially uninformative with respect to the issue of convergence. Whether national or regional economie s appear to converge in terms of per capita income or productivity levels ( the so-called beta -convergence) critically depends on the way in which the empirical model is specified. Traditional specifications witness a disprop oaionate presence of proxies for forces leading towards divergence among th e conditioning variables. It is therefore hardly surprising that these anal yses find a positive and statistically significant value for the estimate o f the speed of convergence. A more constructive use of cross-section and panel data regressions is in t he analysis of the determinants of growth. The present paper therefore buil ds on recent work on the role of different growth determinants (Cheshire an d Carbonaro 1996) and analyses the growth performance of 122 Functional Urb an Regions (FURs) over the period 1978-1994. This model explicitly recogniz es growth as a multivariate process. In this new formulation it incorporate s a spatialized adaptation of Romer's endogenous growth model (Romer 1990), developing the work of Magrini (Magrini 1997). Magrini's model originated from the view that technological knowledge has a very important tacit compo nent that has been neglected in formal theories of endogenous growth. This tacit component, being the non-written personal heritage of individuals or groups, is naturally concentrated in space. As a result, technological chan ge is profoundly influenced by the interaction between firms and their loca l environments. The present paper reports the results of the estimation of a fully specifie d model of regional growth in per capita income. Particular attention is pl ayed to the role of research and development (R&D) activities, and to the i nfluence of factors such as Universities that shape the local environments and have important policy implications.