Regional economic growth and unemployment in the European Union – a spatio-temporal analysis at the NUTS-2 level (2013–2019)

Abstract

The study aims to verify the relationship between the unemployment rate and economic growth in European Union (EU) regions. As the most important macroeconomic relationship, the significance of the dependence between the labour market situation and the output growth is widely known and considered. Analysis in this research was conducted using data for 229 EU regions on the NUTS-2 level in the years 2013–2019. In order to verify the relationship between the unemployment rate and the output growth, the spatio-temporal models for pooled time series and cross-sectional data (TSCS) were estimated. The Fitted Trend and Elasticity Method of verifying Okun’s law was used in the analysis, wherein the deterministic trend factor was enriched with the spatial element. Educational attainment as the additional explanatory variable was included in the models. The neighbourhood between regions was quantified based on two criteria: (1) common border criterion – related to the possibility of population migrations, and (2) similarity of the unemployment rate criterion – related to the imitation effect in the issue of introduced rules and regulations on the labour market by regional governments. One of the hypotheses verified in the investigation is the superiority of the economic neighbourhood over the geographical neighbourhood.