Innovation, Growth and Convergence in the Euro-Mediterranean Area: Implications for MENA Countries

This paper focuses on the innovation gap between countries in the Euro-Mediterranean (Euromed) area and its implications in terms of growth and convergence. Using a large set of innovation variables, we estimate a growth model à la Barro which shows that differences in innovation between countries explain differences in growth of per capita GDP within this area. The model relies on specific estimators which address the endogeneity problem.These are the fixed effects decomposition variable (FEDV) estimator, the Hausman and Taylor estimator (HT) as well as the error component two-stage least squares instrumental variables estimator (EC2SLQ IV). Finally, the implications for MENA countries are investigated through the estimation of a convergence model, which shows that differences in innovation between MENA countries explain differences in the convergence process of these countries toward EU GDP per capita. These results have important policy implications which are discussed in the conclusion.