Club Convergence in Productivity among European Regions: Recent Evidence and Policy Implications

Abstract

We use data on 155 NUTS regions, with the objective of i) generating TFP series over 1996-2018, and ii) testing for club-convergence. We also employ a logistic regression to identify the significant club-membership conditioning factors. We contribute to the literature on two main grounds. Firstly, we are the first to extract TFP series while applying a methodology that allows for heterogeneous production functions and accounts for cross-section dependence and nonstationarity. Secondly, we are the first to apply a TFP-club convergence analysis in the context of European regions over a large period of time that witnessed several shocks affecting the European integration. Our analysis reveals that: (i) most of the regions of the top TFP convergence clubs are located in the "old" EU-member states, with few regions situated in countries that joined the EU after 2004; (ii) several regions in the South are trailing with the risk of falling in a "productivity trap"; (iii) regions situated in new EU-member countries registered remarkable TFP growth rates; (iv) larger regional research and development resources, and higher employment in high-technology sectors are associated with a greater probability of being member of top-ranked TFP convergence clubs. Our findings suggest that the needs of the lagging regions should be prioritized in the agenda of the EU. In this respect, we suggest several recommendations.