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A Bayesian approach to identifying and interpreting regional convergence clubs in Europe

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  • Manfred M. Fischer
  • James P. LeSage

Abstract

This study suggests a two-step approach to identifying and interpreting regional convergence clubs in Europe. The first step involves identifying the number and composition of clubs using a space-time panel data model for annual income growth rates in conjunction with Bayesian model comparison methods. A second step uses a Bayesian space-time panel data model to assess how changes in the initial endowments of variables (that explain growth) impact regional income levels over time. These dynamic trajectories of changes in regional income levels over time allow us to draw inferences regarding the timing and magnitude of regional income responses to changes in the initial conditions for the clubs that have been identified in the first step. This is in contrast to conventional practice that involves setting the number of clubs ex ante, selecting the composition of the potential convergence clubs according to some a priori criterion (such as initial per capita income thresholds for example), and using cross-sectional growth regressions for estimation and interpretation purposes. KEYWORDS: Dynamic space-time panel data model, Bayesian model comparison, European regions JEL Classification: C11, C23, O47, O52

Suggested Citation

  • Manfred M. Fischer & James P. LeSage, 2012. "A Bayesian approach to identifying and interpreting regional convergence clubs in Europe," ERSA conference papers ersa12p217, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa12p217
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    More about this item

    Keywords

    dynamic space-time panel data model; bayesian model comparison; european regions jel classification: c11; c23; o47; o52;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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