Growth, Agglomeration and Convergence: a Space-time Analysis for European Regions

Abstract

This paper sheds empirical light on the relationship between agglomeration and economic growth and its impact on the convergence hypothesis. Using a sample of 208 European regions over 25 years, ‘standard’ growth regressions are estimated using panel data techniques. Both the effect of agglomeration within one's own region and the interregional aspect of agglomeration are looked at. The estimation results show that, on average, denser regions grow slower than other regions, indicating a net negative effect of agglomeration. However, being located close to other growing regions is found to stimulate growth in one's own region. The implied convergence rate is also affected when the inter- and intraregional aspects of agglomeration are taken into account, where the former (latter) results in lower (slightly higher) convergence estimates.

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