Heterogeneity of regional growth in the EU: A recursive partitioning approach

Abstract

We use model-based recursive partitioning as a technique to assess heterogeneity of growth and convergence processes based on an economic growth regression for 255 European Union NUTS2 regions from 1995 to 2005. The starting point of the analysis is a human-capital-augmented Solow-type growth equation similar in spirit to Mankiw, Romer, and Weil (1992). Initial GDP and the share of highly educated in the working age population are found to be important for explaining economic growth, whereas the investment share in physical capital is only significant for coastal regions in the PIIGS countries. Recursive partitioning leads to a regression tree with four terminal nodes with partitioning according to (i) capital regions, (ii) non-capital regions in or outside the so-called PIIGS countries and (iii) inside the respective PIIGS regions furthermore between coastal and non-coastal regions.