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Department of Economics, WU (Wirtschaftsuniversität Wien) Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)

No 198:
Growing Together? Projecting Income Growth in Europe at the Regional Level

Jesus Crespo Cuaresma (), Gernot Doppelhofer (), Florian Huber () and Philipp Piribauer ()

Abstract: In this paper we present an econometric framework aimed at obtaining projections of income growth in Europe at the regional level. We account for model uncertainty in terms of the choice of explanatory variables, as well as the nature of the spatial spillovers of output growth and human capital investment. Building on recent advances in Bayesian model averaging, we construct projected trajectories of income and human capital simultaneously, while integrating out the effects of other covariates. This approach allows us to assess the potential contribution of future educational attainment to economic growth and income convergence among European regions over the next decades. Our findings suggest that income convergence dynamics and human capital act as important drivers of income growth for the decades to come. In addition we find that the relative return of improving educational attainment levels in terms of economic growth appears to be higher in peripheral European regions.

Keywords: Income projections, model uncertainty, spatial filtering, European regions; (follow links to similar papers)

JEL-Codes: C11,; C15,; C21,; O52; (follow links to similar papers)

July 2015

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