On the Sources of Convergence: A Close Look at the Spanish Regions

We investigate the sources of productivity convergence using panel data for the Spanish regions. As a framwork, we develop a simple descriptive growth model which allows for factor accumulation, technological diffusion and rate effects from human capital and which includes fixed regional effects to allow for unobserved factors. Our results indicate that technological catch-up, the equalization of education levels and the redistribution of employment across regions, accounts for most of the observed reduction in regional disparities. We also find that, even after controlling for factor stocks and flows and technological diffusion, there remains very significant cross-regional differences in estimated total factor productivity levels, which point to the omission of important variables and to the need for a more disaggregated analysis. Lastly, we provide some preliminary evidence on the importance of sectoral factors in explaining the evolution of the regional income distribution.