Growth and Convergence in a Multiregional Model with Space-Time Dynamics

The goal of this article is to test four distinct hypotheses about whether the relative location of an economy affects economic growth and economic well-being using an extended Solow-Swan neoclassical growth model that incorporates both space and time dynamics. We show that the econometric specification takes the form of an unconstrained spatial Durbin model, and we investigate whether the results depend on some methodological issues, such as the choice of the time span and the inclusion of fixed effects. To estimate the fixed effects spatial Solow-Swan model, we adjust the Arrelano and Bond (1991) generalized method-of-moments (GMM) estimator to deal with endogeneity not only arising from the initial income level, as in the basic model, but also from the initial income levels and economic growth rates observed in neighboring economies.