Does Spatial Heterogeneity Matter in the EU Regions’ Convergence Income Process?

Abstract

This paper explores the role spatial heterogeneity in the EU regions’ convergence income process. For this purpose we tested in come convergence hypothesis of the 245 NUTS 2 European Union regions during the period 2003 – 2014. We used spatial econometric approach which allowed an explicit modelling of both spatial effects: spatial heterogeneity and spatial autocorrelation. Our results showed an appropriate consideration of the rol of spatial effects. First, we found that the rate of economic growth in the re gion is not only affected by the exogenous characteristics of the region, but also potentially by the rate of economic growth in neighbouring regions. Secondly, estimated spatial regime model identified two spatial regimes – convergence clubs. The regions under the first spatial convergence regime included econo mically „weaker” regions (mainly regions of post-socialist countries, region s of Portugal, Spain, Greece and southern regions of Italy) and these regions are converging separately from the rest of regions of the EU.