TECHNOLOGY, GROWTH AND UNEMPLOYMENT ACROSS EUROPEAN REGIONS

The process of convergence in GDP per capita levels across European re gions came to a halt in the 1980s, although the differences in GDP per capita remain substantial. Moreover, these differences are related to similarly persistent differences in unemployment rates. This paper ar gues that a perspective which, in addition to other factors, takes int o account differences across regions in innovation and diffusion of te chnology may explain these findings. A simultaneous equation model wit h GDP per capita growth, employment growth and migration as endogenous Variables is proposed and estimated using data for 64 European region s in the 1980s. The results show that innovation and the diffusion of technology are indeed important factors behind European growth in the 1980s. However, due to a lack of own R&D capabilities, most poor regio ns fail to take advantage of the more advanced technologies available elsewhere. The growth of the poor regions is also hampered by an unfav ourable industrial structure (the predominance of agriculture). As a c onsequence, growth of GDP per capita in the poorer regions is not subs tantially faster than in the richer ones (where growth is fuelled by m uch larger R&D efforts and a more advanced industrial structure). Alth ough employment in poor regions actually grows somewhat faster than in the rich ones, so does labour supply, preventing a (relative) reducti on in their rates of unemployment.