Regional dynamics of economic performance in the EU: To what extent do spatial spillovers matter?

This paper investigates the main determinants of economic perfor- mance in the EU from a regional perspective, covering 253 regions over the period 2001-2008. In addition to the traditional determinants of eco- nomic performance, measured by GDP per capita, the analysis accounts for spatial e¤ects related to externalities from neighbouring regions. The spatial Durbin random-e¤ect panel specication captures spatial feedback e¤ects from the neighbours through spatially lagged dependent and inde- pendent variables. Social-economic environment and traditional determi- nants of GDP per capita (distance from innovation frontier, physical and human capital and innovation) are found to be signicant. Overall, our ndings conrm the signicance of spatial spillovers, as business invest- ment and human capital of neighbouring regions have a positive impact both direct and indirect on economic performance of a given region