What Determined the Uneven Growth of Europe´s Southern Regions? An Empirical Study with Panel Data

Since 1975, the extent of catching-up has been very different across Southern regions. Starting from the common arguments of growth theory, the paper wishes to show whether differences in regional income and growth can be attributed to different endowment in human capital, differences in private or public investment level, to structural imbalances, and labour force participation. The investigated panel consists of regional time series for the period 1975 to 1994 and includes NUTS II level regions of Greece, Spain, and the Italian South. Estimation of the impact of the variables on regional income is effected in a dynamic panel data model applying a GMM estimation procedure. The results indicate that the income level of Southern EU regions is largely determined by employment/educational levels and past public investment, while the impact of private investment is not significant. One may follow that EU regional policies should predominately focus on the human factor. Assistance to member countries to upgrade public infrastructures may be continued, but private investment incentives should be curbed.