The role of structural change in European regional productivity growth

Transcription

1 The role of srucural change n European regonal producvy growh Eon O Leary and Don J. Webber 2 Deparmen of Economcs Unversy College Cork Ireland 2 Deparmen of Accounng Economcs and Fnance Unversy of he Wes of England Brsol UK Absrac Recen leraure suggess ha ner-secoral srucural change has a neglgble mpac on aggregae producvy growh. Through he applcaon of dynamc shf-share mehods hs paper presens an emprcal re-examnaon of hs perspecve usng daa for 8 European regons from 980 o The resuls sugges ha he effec of he ner-secoral componen s far from neglgble and s subsanally sronger for hose regons owards he hgher decles of he dsrbuon. Moreover s effecs appear o be parcularly growh enhancng when he regon s eher hgh and mprovng or low and deerorang. These resuls rehablae he mporance of srucural change for growh and convergence. Keywords: Regonal roducvy; hf-hare; rucural Change; Growh; Convergence JEL Classfcaons: R; O47 Acknowledgmens: The auhors are graeful for helpful commens from Tony Flegg and semnar parcpans a he Regonal cence Assocaon Inernaonal Brsh and Irsh econ Annual Conferences n raford on Avon 2005 Jersey 2006 and Cardff 20. Thanks o Jon ennng Cambrdge Economercs for helpful dscussons around and provson of he daa. All errors reman he auhors responsbly. Address for correspondence: rof. Don Webber Deparmen of Accounng Economcs and Fnance Unversy of he Wes of England Brsol B6 QY UK

2 . Inroducon Early heorecal conrbuons on he effecs of srucural change on growh and convergence expeced o be posve. The benefcal effecs on growh come hrough a reallocaon of surplus labour from agrculure o ndusry and servces Lews 954 and have been referred o by Temple 200 as he growh bonus. These shfs from he prmary o he secondary and erary secors may cause convergence assumng poor regons have relavely more labour n low-producvy secors such as agrculure Abramovz 986. However n prncple he movemen of labour beween secors n search of hgher wages may no be confned o poor regons. Rch regons may also grow faser and dverge from oher regons hrough labour reallocaon generaed beween and whn secors. hfs could occur beween low producvy secors such as exles and clohng and hgh-producvy secors such as elecroncs owng for example o ncreasng reurns from echnologcal progress n he laer. I s an emprcal queson as o wheher and he exen o whch srucural change has been mporan for growh and convergence/dvergence and wheher hs s counry- and/or regon-specfc. The man purpose of hs paper s o measure he effecs of srucural change beween 5 secors ncludng 7 manufacurng and 6 marke servces secors on he growh and convergence/dvergence performance of 8 EU regons beween 980 and There s an emergng consensus n he leraure ha he effec of nra-secoral srucural change on aggregae producvy growh and convergence s domnan and ha any smlar effecs of ner-secoral srucural change are neglgble. Emprcal evdence n suppor of hs s parcularly srong n Eseban 2000 Ezcurra e al. 2

3 2005 Vllaverde and Maza 2008 and Le Gallo and Kamaranaks 20. However here are excepons as ac and glaru 997 for Ialy O Leary 2003a b for Ireland Carluer and Gauler 2005 for France and Gl e al for he EU fnd ha ner-secoral srucural change s sronger n poorer regons and has a convergen effec. Ths paper bulds on he work of O Leary 2003a b and shows ha whle srucural change measured as he ner-secoral conrbuon has a smaller growh effec becomes progressvely more mporan for he upper decles of he dsrbuon and s especally mporan for regons ha are hgh and mprovng and low and deerorang. olces o smulae eher regonal growh or convergence hrough srucural change mus be founded a leas n par on emprcal evdence. I s mporan o know wheher and o wha exen polces ha eher by desgn or hrough ndrec effecs reallocae employmen from relavely low o relavely hgh producvy secors have an effec on growh. Moreover f does have an effec wll conrbue o convergence or dvergence? If poor regons benef more hen naonal and EU polces argeed a faclang srucural change may promoe he longsandng polcy obecve of balanced developmen. However f rch regons gan more from srucural change hen he polcy debae may need o pay aenon o a hhero overlooked source of dvergence. The nex secon oulnes he debae abou convergence and srucural change. econs 3 and 4 descrbe he daa and specfy he mehodology o be used. econ 5 provdes a dscusson of he resuls and econ 6 draws conclusons and polcy mplcaons. 3

4 2. Regonal convergence and srucural change Among EU regons Gardner e al have shown ha regonal convergence has been remarkably slow and ha he perssence of regonal producvy dspares s a key ssue for researchers and polcy makers. Ths paper nvesgaes one facor ha has effecvely been dsregarded n erms of s mporance for undersandng producvy dspares: ner-secoral srucural change. rucural change s a process nvolvng he re-allocaon of labour from relavely low o relavely hgh producvy secors hus boosng aggregae naonal or regonal producvy growh. Lews 954 hypoheszed ha ncreased growh could be arbuable o srucural change hrough surplus labour n agrculure beng re-allocaed o oher ndusres and servces. In he convergence debae Abramovz suggess ha srucural change mgh have a convergen effec: If counres a relavely low levels of ndusralzaon conan large numbers of redundan workers n farmng and pey rade as s normally he case here s also an opporuny for producvy growh by mprovng he allocaon of labour 986: 387. Thus convergence s he oucome when poor regons wh relavely more labour n low-producvy secors such as agrculure exhb faser producvy growh as a resul of reallocang labour. However s oo resrcve o assume ha srucural change necessarly resuls n convergence. Rch regons may also benef as labour s re-allocaed from ndusry o servces or ndeed whn secors. Ths could occur f n he conex of 4

5 ncreasng nernaonal compeon parcular secors n regons benef more han ohers from localzed ncreasng reurns from echnology spllovers Marn and unley 998 or agglomeraon effecs Krugman 99. In a world characerzed by endogenous growh or new economc geography models s plausble o expec ha he pey rades referred o by Abramovz 986 could be presen n rch regons n relavely low producvy manufacurng or servce ndusres. Hence srucural change mgh lead o regonal dvergence f rch regons grow faser as a resul of labour re-allocaon from relavely low o relavely hgh producvy secors. rucural change s negleced n he neoclasscal approach o convergence. ac and glar 997 show ha n he neoclasscal framework here s no room for srucural change snce margnal producvy s assumed o be equal across secors see also Gl e al Alhough he sandard condonal convergence mehod ncludes he nal agrculural employmen share as an ndependen varable he purpose s no o esmae he effecs of srucural change bu nsead o conrol for he effec of aggregae shocks on regonal producvy growh see for example Buon and enecos 995 and Hoffer and Worgoer 997. ac and glaru 997 exended hs sandard mehod by conrollng for he secoral reallocaon effec. They argued ha aggregae convergence among Ialan regons was largely due o hs effec whch s calculaed usng he shf-share mehod. Cuadrado-Roura e al. 999 showed ha he overall convergence of pansh regons beween 955 and 995 was no due o convergence among secors and nsead argued ha convergence was arbuable o he homogenzaon of regonal producve srucures. 5

6 In a sudy of Irsh regons O Leary 2003a b used he shf-share mehod wh he σ convergence measure and found ha srucural change from he prmary secor o have had a convergen effec. The approach used n hs paper s an exenson of hs mehod o 5 secors and 8 EU regons. I nvolves decomposng aggregae producvy growh for each regon beween me perods years and + no hree componens as follows: Inra-secoral producvy growh rao n regon = where and represen secors and regons respecvely s secoral labour producvy defned as regonal gross value added GVA per work-hour s he secoral employmen share of each regon based on he oal number of work-hours and s he number of secors. Ths nra-secoral growh measure capures annual aggregae growh due o secoral producvy growh and he growh rao n equaon may be used o calculae annual growh raes. The nex componen s he ner-secoral srucural growh rao. Ths capures he effec of srucural change hrough ner-secoral labour re-allocaon as follows: Iner-secoral srucural growh rao n regon = 2 6

7 The fnal componen s he resdual whch s usually small and s he neracon beween he nra-secoral and ner-secoral componens such ha: Resdual producvy growh rao n regon = 3 I should be clarfed ha srucural change s capured exclusvely n nersecoral componen 2. However srucural change also conrbues o he resdual componen whch s an neracon erm. For compleeness he overall conrbuon of srucural change s also calculaed as he dfference beween aggregae producvy growh and nra-secoral producvy growh whch n effec refers o he combnaon of boh ner-secoral and resdual componens and represens an upperbound on s conrbuon. Whle he shf-share echnque has lmaons especally n he area of forecasng evens and Moore 980 s n wdespread use n he analyss of labour re-allocaon and growh n he regonal leraure see for example Le Gallo and Kamaranaks 20; Ooserhaven and Broersma 2007; Ezcurra e al The proposed measures avod he use of nal year s weghs of whch have been wdely used and can lead o an under-esmaon of he conrbuon of srucural change over me Broadberry 998. Ths problem s overcome by akng prevous year values so ha he proposed mehod can be characerzed as dynamc shf-share. Eseban 2000 uses a smlar shf-share mehod and fnds ha mos of he observed ner-regonal varance n aggregae producvy among EU regons s arbuable o regonal producvy dfferenals. Ths suggess ha ner-secoral 7

8 srucural change has had a neglgble effec on growh. However hs fndng may parly be due o Eseban s sudy beng confned o a very small number of years 986 and 989. Ezcurra e al adoped a smlar mehod o Eseban 2000 and overcame he problem of a severely lmed me perod by nvesgang EU regons over he perod usng Cambrdge Economercs daa. Ther regonal dfferenal componen s defned as he producvy gap beween each regon and he EU average whle he srucural componen refers o he dfference beween he regon s ndusry mx and he EU average. 2 Afer frs regressng each componen on he aggregae regonal producvy gap relave o he EU average over me Ezcurra e al showed ha he regonal componen had he greaes explanaory power wh a mnor role for he srucural componen. They hen conduced a varance decomposon of regonal producvy and concluded ha he sronges mpac came from he regonal componen. Ths led o her suggeson ha srucural change was unmporan and ha a one-secor growh model s more relevan for analysng regonal dspares. More recenly Le Gallo and Kamaranaks 20 employed a smlar mehodology wh smlar resuls. Whle he presen paper employs a smlar mehodology here are some noeworhy dfferences. In parcular Ezcurra e al and Le Gallo and Kamaranaks 20 compued he regonal and srucural componens a a pon n me wh reference o he EU average. Ths amouns o arbung he dfference beween aggregae regonal growh and he EU average o each regon s ndusry mx and dfferenal componens relave o ha average. However Equaons and 2 above show ha hese componens may be compued based on he hsorcal evoluon 8

9 9 of each regon over me and no wh reference o an arbrary average. In addon hs paper also provdes more dealed economerc esng of he effecs of srucural change on growh. To develop he argumen he paper connues by esmang he effec of nrasecoral producvy growh and srucural change as measured above on overall producvy growh. The frs sep s o nvesgae he relaonshp beween aggregae producvy growh and aggregae nra-secoral producvy growh as follows: agg agg agg 4 where agg s aggregae regonal producvy defned as oal regonal GVA per work-hour. I s hypoheszed ha β s posve and close o uny whch would corroborae he resuls of Ezcurra e al The nex sage s o analyse he relaonshp beween aggregae producvy growh and he dfferen measures of srucural change. These are producvy growh equaons focusng on ner-secoral Equaon 5 he resdual componen Equaon 6 and he ner-secoral combned wh he resdual componen Equaon 7 such ha: agg agg agg 5

10 0 agg agg agg 6 agg agg agg agg agg agg 7 Agan n lne wh he fndngs of Ezcurra e al s hypoheszed ha he values of β especally n Equaons 5 and 7 whch represen he lower and upper bound respecvely of he conrbuon of srucural change are close o zero. In esmang hese equaons s normally assumed ha he effecs are dencal across he whole dsrbuon. A key conrbuon of hs paper s o move away from hs resrcve assumpon and o use quanle regresson echnques. Ths would nvolve esmang he effecs of boh nra- and ner-secoral change on producvy levels whle conrollng for he regon s producvy relave o average EU regonal producvy denoed by EUagg o capure convergence owards he mean such ha: agg EU agg agg 3 2 8

11 3. Daa descrpon The emprcal analyses use daa correspondng o 8 EU regons for he perod ha has been exraced from he Cambrdge Economercs 2009 daabase. 3 The advanages of hs daa source are ha provdes secoral gross value added GVA a consan prces and purchasng power pares and labour npu for a large number of UT 2 regons beween 980 and Labour npu s measured as oal hours worked compued as employmen mulpled by average weekly hours worked. Gardner e al argued for he superory of hs measure of labour npu. A furher benef of he daase s ha a hgh degree of secoral dsaggregaon s provded wh 5 secors beng avalable. 4 GVA s n consan 2000 basc prces and purchasng power sandards. Cambrdge Economercs employs naonal secor specfc prce deflaors whch assumes ha for any secor prce movemens are he same across all regons n a counry. The Cambrdge Economercs 2009 daase draws daa from REGIO whch s he offcal source of EU regonal daa Eurosa Table summarzes he number of UT 2 regons nvesgaed for each of 3 EU counres all of whch were members of he orgnal EU 5. Whle UT 2 admnsrave regons are no deal measures of funconal regons Magrn 999 hey are frequenly used. For Belgum wo regons are excluded owng o rregulares wh he secoral daa. For Germany only he 30 former Wes German regons are ncluded owng o her daa beng avalable from 980. Gronngen n he eherlands and orh-easern coland n he UK are excluded because of he nfluence of orh-ea ol see also even and Guoyee 995. In addon

12 Flevoland n he eherlands s excluded as only came no exsence n 986. All 3 regons of Greece are excluded owng o rregulares wh he secoral daa whle Luxembourg s excluded for obvous reasons. Wh hese exclusons we are lef wh a balanced se of 8 regons across 3 EU counres for 27 years. {Inser Table abou here} 4. Economerc approach To denfy sably and conssency n he resuls hree separae me-seres-crosssecon esmaors were appled. The models were esmaed nally usng fxed effecs wh robus varances. Ths approach allows for he conrol of omed varables ha dffer beween regons bu are consan over me. Employng fxed effecs would be approprae f he regonal effecs remaned consan over me. However hs may be an unnecessarly resrcve assumpon whch may no hold for some regons; hs s because he effecs of some omed varables may be consan over me ye vary across regons whle ohers may be fxed across regons bu vary over me. Accordngly we re-esmae he models usng generalzed leas squares GL random effecs whch produces a marx-weghed average of he beween and whn regon resuls. Here Hausman s es ndcaed hroughou ha models assumng fxed effecs models were preferable o hose assumng random effecs; neverheless he resuls of boh ypes of model are presened o llusrae he sably of coeffcens across esmaors wh dfferen underlyng assumpons. 2

13 everheless he applcaon of he above regresson approaches mplcly assumes ha he dsurbance erm s dencally and ndependenly dsrbued ye hs may no be he case f he errors are correlaed over me. As a resul he model was re-esmaed by usng a me-serescross-secon esmaor wh a frs-order auoregressve dsurbance erm see Balag and Wu 999. The above hree regresson approaches whch are exensons of hose used by Ezcurra e al were appled o daa over he enre me perod and across he whole sample. However here s he possbly ha nra- and ner-secoral changes have dfferen effecs on labour producvy dependng on wheher he regon s above or below he sample average and wheher he regon s convergng or dvergng from ha sample average. To nvesgae hese proposons furher we re-esmaed he above models for hese four caegores. Applcaon of hese regresson mehods s based on he mplc assumpon ha he effecs of explanaory varables on producvy do no vary wh he relave values of regons. Ths assumpon s relaxed hrough he applcaon of quanle regressons whch perms an exploraon no he dfferng effecs ha nra- and ner-secoral srucural change may have on labour producvy over me dependng on where regons le whn he producvy dsrbuon. 5. Resuls Ths secon nally presens esmaes of he me-seres-cross-secon esmaons of he effecs of nra- and ner-secoral change on labour producvy growh. 3

14 Aggregae producvy growh and he nra-secor measure To denfy he mporance of nra-secoral change on aggregae producvy growh we esmae Equaon 4. The resuls presened n anel A of Table 2 ndcae ha nra-secoral change has a sascally sgnfcan and enhancng effec on aggregae producvy growh. Because of omed varables he conssenly hgh R 2 values may oversae he mporance of nra-secoral change per se; neverheless hs resul llusraes he mporance of nra-secoral change for producvy growh a he UT 2 regonal level and corroboraes he fndngs of Ezcurra e al {Inser Table 2 abou here} Aggregae producvy growh and he ner-secor measure To denfy he mporance of ner-secoral change on aggregae producvy growh we esmae Equaon 5. Here he resuls presened n anel B of Table 2 sugges ha ner-secoral change s no a maor drvng force behnd producvy growh a fndng ha s smlar o ha of Ezcurra e al Aggregae producvy growh and he resdual componen For compleeness he above mehods are appled o he resdual measure. anel C of Table 2 presens he resuls for Equaon 6. Two mporan pons are worh emphassng. Frs he sascal sgnfcance of he resdual measure vares 4

15 dependng on he esmaor used suggesng a small degree of nsably bu more srkngly he R 2 values are ncredbly small suggesng ha he explanaory power of he resdual measure on producvy growh s small. Ths s o be expeced as he resdual componen self s usually very small. v Aggregae producvy growh and he combned ner-secoral and resdual componens Applcaon of he economerc mehods o he esmaon of Equaon 7 yelds he resuls presened n anel D of Table 2. These resuls sugges ha he combned nersecoral and resdual componens have a sascally sgnfcan and negave assocaon wh producvy growh alhough he explanaory power s nvarably exremely low. v Quanle regresson Taken ogeher he resuls presened above confrm he fndngs of auhors such as Ezcurra e al by suggesng ha a regon s rae of producvy growh s mosly explaned by nra-secoral change and ha ner-secoral change and he resdual have relavely mnor conrbuory effecs. One poenal dsadvanage of he economerc approaches appled above whch are convenonal n he leraure s he mplc underlyng assumpon ha he effecs are dencal across he whole dsrbuon of regons. Ths mplc assumpon s neher heorecally usfable nor 5

16 n lne wh he work of Lews 954 and Abramovz 986 who focused on he benefs of labour reallocaon whn relavely less developed areas. In order o denfy wheher hs mplc assumpon s usfable we nvesgae he effecs of nra-secoral and srucural change on labour producvy growh hrough he applcaon of quanle regressons. Gven he fndngs n panels C and D of Table 2 whch reveal ha he effecs of he resdual componen on growh are weak we chose o focus solely on he ner-secoral componen. Applcaon of Equaon 8 whch akes no consderaon he relave poson of he regon n he dsrbuon a me as well as he separae nra- and ner-secoral change effecs yelds he resuls presened n Table 3. These new resuls cas doub on he sably and valdy of our earler fndngs for each and every decle n he dsrbuon. The β coeffcen whch capures he nal poson of a regon whn he dsrbuon suggess ha a regon above below he mean wll grow slghly faser slower han he mean; noe ha hey are no sascally sgnfcanly dfferen from uny for he 4 h and 5 h decles. These resuls sugges ha here s dvergence n he sample afer accoun has been aken of he effecs of measures of srucural change. Also noable are ha he models have greaer explanaory power as one ascends he dsrbuon. 6 For convenence he srucural change coeffcens are graphed n Fgure whch emphasses he non-lnear effecs especally of ner-secoral change on producvy. {Inser Table 3 and Fgure abou here} Fgure reveals ha he effecs of nra- and ner-secoral change on a regon s producvy depend on where s n he dsrbuon. Fgure shows ha he 6

17 effec of nra-secoral change on a regon s producvy s nvarably srongly posve and s relavely smlar across he dsrbuon. However alhough he effec of nersecoral change on producvy s always less han ha for he nra-secoral componen s far from beng neglgble. Indeed he ner-secoral effec depends on where he regon s locaed n he dsrbuon wh beng subsanally sronger for hose regons owards he op of he dsrbuon. Ths fndng conradcs he proposon ha poorer regons are lkely o benef mos from srucural change as a resul of havng large pools of relavely low-producvy agrculural workers see for example Temple 200 and O Leary 2003a b. By conducng he analyss a a greaer level of secoral dsaggregaon hs paper has uncovered a sgnfcan source of benef o rcher regons from srucural change. v Furher analyss Academcs and polcy makers who pay aenon o hs leraure end o be neresed n wheher a regon s above or below an average and wheher s performance s on an upward or downward relave raecory. Accordngly may be praccal and valuable o nvesgae he effecs of srucural changes on producvy relave o he sample mean for four groups of regons based on a caegorsaon of producvy performance over he enre me perod: hose regons ha are relavely rch and becomng more so hose regons ha are relavely rch bu are deerorang hose regons ha are relavely poor bu mprovng and v hose regons ha are relavely poor and are deerorang furher see Appendx 2 for ls of regons n each caegory and Appendx 3 for se of resuls. 7

18 The effec of nra-secoral change s relavely conssen across he four groups. However s also noceable ha he effec of ner-secoral change on producvy growh dffers dependng on how a regon s performng. Is effec appears o be parcularly growh enhancng f he regon s low and deerorang and hgh and mprovng as emphassed n Fgure 2. Conversely he effec s much smaller f he regon s low and mprovng and hgh and deerorang. Ths suggess ha srucural change may be a srong conrbuory facor n hese dvergng regons and furher renforces he vew ha srucural change should feaure n polcy recommendaons as hese regons cope wh negave and posve shocks. {Inser Fgure 2 abou here} 6. Conclusons Ths paper has presened a se of emprcal ess of he effecs of srucural change on EU regonal producvy growh. The emprcal approach saw he applcaon of a dynamc shf-share approach o a 5 secor measure of GVA per work-hour for 8 EU regons from 980 o The paper s dsncly dfferen from ohers such as Ezcurra 2005 prncpally because of s more dealed economerc esng of he effecs of srucural change on growh and he fac ha s compuaon of he conrbuon of srucural change o he change n producvy s based on he hsorcal evoluon of each regon over me. The man fndngs are ha: 8

19 nra-secoral change was posvely relaed o regonal producvy growh wh ner-secoral change havng much smaller effecs; for decles of he dsrbuon he effec of he ner-secoral componen s far from neglgble and s subsanally sronger for hose regons owards he op of he dsrbuon; he effec of ner-secoral change appears o be parcularly growh enhancng f he regon s low and deerorang and hgh and mprovng. These resuls rehablae he mporance of srucural change for growh and convergence. They cas doub on he curren vew ha he nra-secoral conrbuon s he domnan and perhaps only source of producvy growh and ha ner-secoral srucural change has a neglgble mpac Ezcurra e al. 2005; Vllaverde and Maza 2008; Le Gallo and Kamaranaks 20. Ths paper has mporan polcy mplcaons. Frs he fndng ha srucural change can make a sgnfcan conrbuon o producvy growh n rcher regons suggess ha polces should be argeed a faclang n hese regons hrough educaon ranng and nfrasrucure measures dreced a mprovng labour mobly boh whn and across secors and regons. uch measures may have conradcory effecs on regonal convergence/dvergence. For poor regons ha are fallng behnd average growh adopng such polces could conrbue o convergence o he average. However for rch regons ha are movng ahead of average growh adopng smlar polces wll have dvergen effecs. 9

20 The fndng ha ner-secoral srucural change s mporan for growh of regonal producvy s he mos mporan conrbuon of hs paper. Ths hypohess could be esed for daa ses wh larger numbers of secors regons and counres and for longer me perods. I may also be nvesgaed for neghbourng regon effecs n ha regons may benef more n erms of producvy growh arbuable o labour re-allocaon from regons ha are geographcally proxmae. The resuls of Le Gallo and Kamaranaks 20 whch pon o he mporance of geographcal cluserng sugges ha hs mgh be a fruful exenson of hs lne on nqury. Indeed hs could nvolve he applcaon of he mehods proposed by Mayer and Lopez 2008 o nroduce spaal dependence n a shf-share model. 20

21 References Abramovz M Cachng Up Forgng Ahead and Fallng Behnd Journal of Economc Hsory. 462: pp Arellano M. and Bond. 99 ome Tess of pecfcaon for anel Daa: Mone Carlo Evdence and an Applcaon o Employmen Revew of Economc udes 582 pp Balag B. and. Wu Unequally spaced panel daa regressons wh AR dsurbances Economerc Theory 5 pp u/l case? Broadberry How Dd he Uned aes and Germany Overake Bran? A ecoral Analyss of Comparave roducvy Levels The Journal of Economc Hsory 582: pp Buon K. J. and enecos E. J Tesng for Convergence of he EU Regonal Economes. Economc Inqury. XXXIII: pp Cambrdge Economercs European Regonal Daa: Cambrdge Economercs UK. [Avalable on reques see hp:// Carluer F and G Gauler The Impac of Convergence n he Indusral Mx on Regonal Comparave Growh: Emprcal Evdence from he French Case. Annals of Regonal cence. 39: pp Cuadrado-Roura J.R. Garca Grecano B and Raymond J.L Regonal Convergence n roducvy and roducve rucure: he pansh Case. Inernaonal Regonal cence Revew 22: pp Eseban J Regonal Convergence n Europe and he Indusry Mx: A hf-hare Analyss. Regonal cence and Urban Economcs. 303: pp Eurosa European Regonal ascs: REGIO Eurosa Luxembourg July 4 h. Ezcurra R Gl C ascual and Rapun M Regonal Inequaly n he European Unon: Does Indusry Mx Maer? Regonal udes. 396: pp Gardner B Marn R and Tyler Compeveness roducvy and Economc Growh across he European Regons. Regonal udes. 389: pp Gl Canelea C.. ascual Arzoz and M. Rapun Garae rucural Change Infrasrucure and Convergence n he Regons of he European Unon. European Urban and Regonal udes. 92: pp Hoffer H and Worgoer A 997. Regonal er Capa Income Convergence n Ausra. Regonal udes. 3: pp -2. Krugman 99. Increasng Reurns and Economc Geography. Journal of olcal Economy 99: pp Le Gallo J and Kamaranaks Y. 20. The Evoluon of Regonal roducvy Dspares n he European Unon from 975 o 2002: A Combnaon of hf-hare and paal Economercs. Regonal udes 45: pp

22 Lews A Developmen wh Unlmed upples of Labour The Mancheser chool XXII: pp 39-9 May. Magrn The evoluon of ncome dspares among he regons of he European Unon. Regonal cence and Urban Economcs 29: pp Marn R. L. and unley. J. 998 low convergence? The new endogenous growh heory and regonal developmen Economc Geography 74 pp Mayer M. and A.J. Lopez paal hf hare Analyss versus paal Flerng: An Applcaon o pansh Employmen Daa. Emprcal Economcs 34: pp even D and Guoyee C 995. Regonal Convergence n he European Communy. Journal of Common Marke udes. 33 : pp O Leary E 2003a. Aggregae and ecoral Convergence Among Irsh Regons: The Role of rucural Change: Inernaonal Regonal cence Revew. 26 4: pp O Leary E 2003b. ources of Regonal Dvergence n he Celc Tger: olcy Responses. Journal of he ascal and ocal Inqury ocey of Ireland. XXXII: pp -32. Ooserhaven J and L. Broersma ecor rucure and Cluser Economes: A Decomposon of Regonal Labour roducvy. Regonal udes 45: pp ac R and glaru F 997. rucural Change and Convergence: An Ialan Regonal erspecve. rucural Change and Economc Dynamcs. 8: pp Quah D Emprcs for Economc Growh and Convergence. European Economc Revew. 40 6: pp evens B.H. and Moore C.L A Crcal Revew of he Leraure on hf-hare as a Forecasng Technque. Journal of Regonal cence 204: Temple J rucural Change and Europe s Golden Age Cenre for Economc olcy Research Dscusson aper o. 286 June. Vllaverde J. and A. Maza Regonal Convergence n he European Regons : A ecoral and paal Approach. Appled Economcs. 40:

23 Fgure : Quanle regresson esmaes 23

24 Fgure 2: Margnal effecs by caegory based on random effecs esmaor 24

25 Table : umber of EU UT 2 regons Counry UT 2 Regons Belgum 9 Denmark 5 Germany 2 30 pan 9 France 22 Ialy 2 The eherlands 3 0 Ausra 9 orugal 4 5 Fnland 5 weden 8 Ireland 2 UK 5 36 Toal 6 8 ource: Cambrdge Economercs oes : Excludng he regon Wes Braban and Braban Wallon. 2: Includes only he former Wes German regons. 3. Gronngen and Flevoland excluded. 4: Excludng Azores and Madera. 5: orh-eas coland excluded 6: All 3 regons of Greece excluded. 25

26 Table 2: hf-share regresson resuls α Inrasrucural change Inersrucural change anel A: Equaon 4: Inra-secoral componen of producvy growh Fxed effecs wh robus varance Random effecs GL Random effecs GL regresson wh AR dsurbances *** *** *** *** *** *** anel B: Equaon 5: Iner-secoral componen of producvy growh Fxed effecs wh robus varance Random effecs GL Random effecs GL regresson wh AR dsurbances *** *** *** Resdual componen Iner- srucural change and Resdual Combned anel C: Equaon 6: Growh and he resdual componen of producvy growh Fxed effecs wh robus varance Random effecs GL Random effecs GL regresson wh AR dsurbances *** *** *** *** *** anel D: Equaon 7: Iner-secoral and resdual componens combned of producvy growh Fxed effecs wh robus varance Random effecs GL Random effecs GL regresson wh AR dsurbances *** *** *** * *** *** oes: sandard errors n parenheses. *** ** and * sgnfy sascal sgnfcance a he % 5% and 0% levels respecvely. R 2 s [Whn] {Beween} Overall [0.94] {0.925} [0.94] {0.925} [0.944] {0.790} [0.000] {0.08} [0.000] {0.08} [0.000] {0.08} [0.00] {0.04} [0.00] {0.04} [0.00] {0.04} [0.008] {0.000} [0.008] {0.000} [0.007] {0.000}

27 Table 3: Esmaon of Equaon 8: Quanle regressons Quanle α β Inal β poson 2 Inra-C β 3 Iner-C R 2 Tes H o : β = Q *** 0.002*** 0.009*** 0.057*** *** Q *** 0.002*** 0.009*** 0.044*** *** Q *** 0.00*** 0.007*** 0.048*** *** Q *** 0.00*** 0.008*** 0.059*** *** Q *** 0.00*** 0.00*** 0.073*** Q *** 0.00*** 0.02*** 0.08*** Q *** 0.00*** 0.04*** 0.00*** *** Q *** 0.002*** 0.04*** 0.45** *** Q *** 0.003*** 0.022*** *** oe: These coeffcens can be nerpreed as margnal effecs. Esmaes are based on 000 boosraps. 27

28 Appendx : Table A: 5 ecoral classfcaon ACE Rev Agrculure Foresry and Fshng Mnng and Energy Food Beverages and Tobacco Texles and Clohng Fuels Chemcals Rubber and lasc roducs Elecroncs Transpor Equpmen Oher Manufacurng Consrucon Wholesale and Real Hoels and Resaurans Transpor and Communcaon Fnancal ervces Oher Marke ervces on-marke ervces Appendx 2: Group membershps Low and Deerorang =6: yddanmark dk03 Mdylland dk04 Canabra es3 Caslla y León es4 Caslla-la Mancha es42 Exremadura es43 Andaluca es6 Regón de Murca es62 Åland f2 ugla f4 måland med öarna se2 Merseysde ukd5 ouh Yorkshre uke3 Devon ukk4 Wes Wales and The Valleys ukl and ouh Wesern coland ukm3. Low and mprovng =8: Burgenland a ederöserrech a2 Kärnen a2 eermark a22 Freburg de3 ederbayern de22 Oberpfalz de23 Oberfranken de24 Unerfranken de26 Hannover de92 Lüneburg de93 Weser-Ems de94 Münser dea3 Demold dea4 Koblenz deb Trer deb2 aarland dec ælland dk02 ordylland dk05 Galca es rncpado de Asuras es2 La Roa es23 Aragón es24 Comundad Valencana es52 Cudad Auónoma de Ceua es63 Cudad Auónoma de Mellla es64 Canaras es7 Iä-uom f3 Läns- uom f9 ohos-uom fa Basse-ormande fr25 ays de la Lore fr5 Breagne fr52 oou-charenes fr53 Lmousn fr63 Auvergne fr72 Corse fr83 Border Mdlands and Wesern e0 Abruzzo f Molse f2 Campana f3 Baslcaa f5 Calabra f6 ardegna g2 ore p Algarve p5 Cenro p6 Lsboa p7 Aleneo p8 Ösra Mellansverge se2 ydsverge se22 Vässverge se23 Tees Valley and Durham ukc orhumberland Tyne and Wear ukc2 Cumbra ukd Greaer Mancheser ukd3 Lancashre ukd4 Eas Yorkshre and orhern Lncolnshre uke orh Yorkshre uke2 Wes Yorkshre uke4 Derbyshre and onghamshre ukf Lecesershre Ruland and orhans ukf2 Lncolnshre ukf3 Herefordshre Worcesershre and Warks ukg hropshre and affordshre ukg2 Wes Mdlands ukg3 Eas Angla ukh Bedfordshre and Herfordshre ukh2 Essex ukh3 Ouer London uk2 Berkshre Bucks and Oxfordshre uk urrey Eas and Wes ussex uk2 Hampshre and Isle of Wgh uk3 Ken uk4 Gloucesershre Wlshre and Brsol/Bah area ukk Dorse and omerse ukk2 Cornwall and Isles of clly 28

29 ukk3 Eas Wales ukl2 Easern coland ukm2 and Hghlands and Islands ukm6 and orhern Ireland ukn. Hgh and deerorang =66: Oberöserrech a3 alzburg a32 Trol a33 Vorarlberg a34 Régon de Bruxelles-Capale/Brussels Hoofdsedelk Gewes be rov. Anwerpen be2 rov. Oos-Vlaanderen be23 rov. Wes-Vlaanderen be25 rov. Hanau be32 rov. Lège be33 rov. Luxembourg be34 rov. amur be35 ugar de Karlsruhe de2 Tübngen de4 Oberbayern de2 Melfranken de25 chwaben de27 Bremen de5 Darmsad de7 Geßen de72 Kassel de73 Braunschweg de9 Düsseldorf dea Köln dea2 Arnsberg dea5 Rhenhessen- falz deb3 chleswg-holsen def as Vasco es2 Comundad Foral de avarra es22 Comundad de Madrd es3 Caaluña es5 Illes Balears es53 Eelä-uom f8 carde fr22 Bourgogne fr26 Lorrane fr4 Alsace fr42 Franche-Comé fr43 Md-yrénées fr62 Languedoc-Roussllon fr8 ouhern and Easern e02 emone c Valle d'aosa/vallée d'aose c2 Lgura c3 Lombarda c4 rovnca Auonoma Bolzano-Bozen d rovnca Auonoma Treno d2 Veneo d3 Frul-Veneza Gula d4 Emla-Romagna d5 Toscana e Umbra e2 Marche e3 Lazo e4 cla g Fresland nl2 Drenhe nl3 Gelderland nl22 Zeeland nl34 ockholm se orra Mellansverge se3 Mellersa orrland se32 Övre orrland se33 Cheshre ukd2 and Inner London uk. Hgh and mprovng =8: Wen a3 rov. Lmburg be22 Hamburg de6 Hovedsaden dk0 Île de France fr Champagne-Ardenne fr2 Haue-ormande fr23 Cenre fr24 ord - as-de-calas fr3 Aquane fr6 Rhône-Alpes fr7 rovence-alpes- Côe d'azur fr82 Overssel nl2 Urech nl3 oord-holland nl32 Zud- Holland nl33 oord-braban nl4 and Lmburg nl42. Mehod Appendx 2: Caegores random effecs esmaor Hgh and mprovng n=8 Hgh and deerorang n=66 Low and mprovng n=8 Low and deerorang n=6 α *** *** *** *** Inal poson.8e e-07*** 2.4e e-07*** 2.56e e-07***.4e-05.44e-06*** Inra-C *** *** *** *** Iner-C *** ** *** oes: sandard errors n parenheses. *** ** and * sgnfy sascal sgnfcance a he % 5% and 0% levels respecvely. R 2 s [Whn] {Beween} Overall [0.283] {0.99} [0.29] {0.986} 0.43 [0.337] {0.997} [0.043] {0.849}

30 Endnoes Ths s he dfference beween + + / and Equaon. Usng hs paper s noaon Ezcurra e al defne he regonal dfferenal as - and he ndusry mx as -. An neracon or allocave componen s also analysed equal o - -. and refer respecvely o average EU secoral producvy levels and secoral employmen shares for a gven year whle refers o regons. Ezcurra e al used he same source from 977 o 999. ee Table A n Appendx for he secoral defnons. REGIO s ncomplee wh full seres no avalable for all EU counres especally a he dealed secoral level. The effecs of srucural change on regons owards he boom of he dsrbuon may be smaller because of oher facors ha have no been accouned for n our modellng process; hese facors may correspond o he communcaon nfrasrucure roads broadband ec. he qualy of he labour force oumgraon of sklled labour ec. 30