Regional Convergence in the European Union (1985-1999): A Spatial Dynamic Panel Analysis

The authors estimate the speed of income convergence for a sample of 196 European NUTS 2 regions over the period 1985-1999. They propose a two-step procedure, which involves first spatial filtering of the variables to remove the spatial correlation, and application of standard GMM estimators for dynamic panels in a second step. Results show that ignorance of the spatial correlation leads to potentially misleading results.