The evolution of regional productivity disparities in the European Union, 1975-2000

The aim of this paper is to assess the evolution of regional productivity disparities in the European Union. Using a sample of 205 regions and 8 sectors on the 1975-2000 period, we use Esteban’s shift- share analysis to investigate the extent to which the existing interregional inequalities in productivity can be attributed to differences in sectoral composition between regions and/or to uniform productivity gaps across sectors. After a specification search on the bivariate functional forms that relate productivity differentials to their shift-share decomposition, the difference between regional and EU average productivity is regressed on the three shift-share components: industry-mix, differential and allocative (i.e. the covariance between the first two components). In that purpose, spatial seemingly unrelated (SUR) regressions are carried out to study the evolution of the impact of the components on the productivity gap over time, while allowing for intertemporal covariance. Moreover, spatial autocorrelation is also included in the SUR regressions, and its evolution over the period is analyzed. Results indicate that both spatio-temporal dependencies are essential in model specification.