Regional Convergence in Portugal in the context of the European Union

Main trends of per capita income convergence in Portugal and the European Union are surveyed. An explanation is given to the fact that in the last two decades countries have converged, while no visible convergence has taken place among the regions belonging to a given country. A theoretical explanation is proposed in terms of regional growth. Assuming that the distribution of the stock of existing firms in the European Union is fixed, it is assumed that the degree of convergence follows from the increase of the number of firms or of output, excluding relocation. Then it is concluded that the observed pattern can be explained in two different ways. If the externalities connected with the accumulation of knowledge are purely local, the observed pattem can be viewed as the outcome of lack of selectivity in the design of european Regional Policy. If knowledge spillovers are not strictly localized, the most advanced regions in each country are also the most accessible ones in the transport and telecommunication networks, so that they benefit frorn externalities at the European Union scale, while the backward regions get at most positive externalities at the national scale. This difference explains the fact that the former converge to the european average while the latter do not.