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Regional club convergence in the EU: evidence from a panel data analysis

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Abstract

We investigate club convergence in income per capita in 194 European NUTS-2 regions using a nonlinear, time-varying factor model that allows for individual and transitional heterogeneity. Moreover, we extend an existing club clustering algorithm with two post-clustering merging algorithms that finalize club formation. We also apply an ordered response model to assess the role of initial and structural conditions, as well as geographic factors. Our results indicate the presence of four convergence clubs in the EU-15 countries. In support of the club convergence hypothesis, we find that initial conditions matter for the resulting income distribution. Geographic clustering is quite pronounced; besides a north-to-south division, we detect high-income clusters for capital cities. We conclude that the main supranational policy challenge is the politically sensitive handling of a multi-speed Europe.

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Notes

  1. Nevertheless, Monfort et al. (2013) do not establish any causality running from Eurozone membership to a higher growth path. It seems more reasonable to assume that certain economic characteristics of these countries qualified them to join the Eurozone.

  2. GIPS refers to Greece, Italy, Portugal, and Spain.

  3. Discussions of ordered logit models can be found in Verbeek (2012, chap. 7) and Cameron and Trivedi (2005, chap. 15).

  4. We thank Monika Bartkowska and Aleksandra Riedl for kindly providing us with their Matlab code for the PS procedure.

  5. In fact, the average physical capital formation of British regions in 1980 was on average higher in lower-income clubs, contrary to the capital formation of all other regions (cp. Table 11).

  6. Table 18 summarizes the club composition stability.

  7. Table 19 summarizes the club composition stability.

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Acknowledgments

We gratefully acknowledge three anonymous referees for valuable comments on an earlier draft. We also thank the participants of the 8th RGS Doctoral Conference on Economics in February 2015 for helpful comments.

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Authors and Affiliations

  1. Department of Economics, Faculty of Economics and Social Sciences, University of Hamburg, Von-Melle-Park 5, 20146, Hamburg, Germany

    Konrad von Lyncker & Rasmus Thoennessen

Authors
  1. Konrad von Lyncker
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  2. Rasmus Thoennessen
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Correspondence to Rasmus Thoennessen.

Appendix

Appendix

See Tables 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 and 19.

Table 9 Variables and sources
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Table 10 Summary statistics
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Table 11 Average p.c. gross fixed capital formation in 1980 (in Euro)
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Table 12 Robustness: marginal effects on probabilities (ordered logit) with geographic controls
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Table 13 Results of the log t test, 1990–2011
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Table 14 Results of the log t test, 1990–2007
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Table 15 Results of the log t test, 1980–2011, \(r=0.2\)
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Table 16 Results of the log t test, 1980–2011, \(r=0.4\)
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Table 17 Stability of club composition: change in the truncation parameter
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Table 18 Stability of club composition: change in the significance level
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Table 19 Stability of club composition: Eurozone panel
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von Lyncker, K., Thoennessen, R. Regional club convergence in the EU: evidence from a panel data analysis. Empir Econ 52, 525–553 (2017). https://doi.org/10.1007/s00181-016-1096-2

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