Spatial econometrics has been criticized by some economists because some model specifications have been driven by data-analytic considerations rather than having a firm foundation in economic theory. In particular this applies to the so-called W matrix, which is integral to the structure of endogenous and exogenous spatial lags, and to spatial error processes, and which are almost the sine qua non of spatial econometrics. Moreover it has been suggested that the significance of a spatially lagged dependent variable involving W may be misleading, since it may be simply picking up the effects of omitted spatially dependent variables, incorrectly suggesting the existence of a spillover mechanism. In this paper we review the theoretical and empirical rationale for network dependence and spatial externalities as embodied in spatially lagged variables, arguing that failing to acknowledge their presence at least leads to biased inference, can be a cause of inconsistent estimation, and leads to an incorrect understanding of true causal processes.

In this paper we test for regional convergence clusters across the EU. We utilise a methodology that allows for the endogenous selection of regional clusters using a multivariate test for stationarity, where the number and composition of clusters are determined by the application of pairwise tests of regional differences in per capita output over time. To interpret the composition of the resulting convergence clusters, the latter are tested against a number of possible groupings suggested by recent theories and hypotheses of regional growth and convergence. Further, our method allows regional convergence clusters to vary over time.Since the mid-1980s, the study of long-term growth has made a major re-appearance on the research agenda in economics. An important stimulus for this revival has been the renewed interest in the empirics of growth, and especially the evidence that rates of long-run convergence of per capita output and incomes between nations, and even between regions within nations, appear to be much slower and far more variable than predicted by the standard Solow-Swan neoclassical growth model (Abramovitz, 1986;Boltho and Holtham, 1992). One consequence has been the emergence of a 'new' growth theory that incorporates increasing returns and technical change within the production function as determinants of the (endogenous) long-term growth rate (Romer, 1986;Lucas, 1988;Grossman and Helpman, 1994;Barro and Sala-i-Martin, 1997). Although several variants of this new endogenous growth theory have been developed, all permit a wider set of possibilities with regard to convergence behaviour. Some variants predict 'conditional' convergence of national (regional) per capita incomes to different long-run steady states that depend on initial national (regional) differences in institutional set-up, economic structure, tastes and so on. Others allow for so-called 'club' convergence among countries (regions) with similar structural and related conditions. Still others, including models that assume that technological advance is highly localised and its diffusion slow, predict persistent or even divergent differences in national (or regional) per capita output and incomes as long run outcomes (Bertola, 1993).At the same time, the emergence over the past decade or so of the so-called 'new economic geography' models of industrial location and agglomeration has highlighted how many sources of increasing returns are associated with Marshalliantype external localisation economies (such as access to specialised local labour inputs, local market access and size effects, local knowledge spillovers, and the like). These models provide a rich set of possible long-run regional growth patterns that depend, among other things, on the relative importance of transport costs and localisation economies (Fujita et al., 1999;Brackman et al., 2001;

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Our paper provides some novel evidence on the burgeoning literature on life satisfaction and relative comparisons by showing that in the last 30 years comparisons with the wellbeing of top income countries have generated progressively more negative feelings on a large sample of individuals in the Eurobarometer survey. The paper contributes in two main directions: (i) it shows that countries, and not just neighbors, can be reference groups; (ii) it documents a globalization effect by which distant countries become progressively closer and comparisons among them more intense and relevant. Our findings may be interpreted in support of the well known hypothesis that migratory decisions are affected by the gap in economic wellbeing between origin and destination country since they document that such gap affects individual life satisfaction.

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We provide non experimental evidence of the relevance of sociability on subjective wellbeing by investigating the determinants of life satisfaction on a large sample of Europeans aged above 50. We document that voluntary work, religious attendance, helping friends/neighbours and participation to community-related organizations affect positively and significantly life satisfaction. We illustrate the different impact that some sociability variables have on eudaimonic versus cognitive measures of subjective wellbeing. Our empirical findings discriminate among other regarding and self-regarding preferences as rationales explaining such behaviour. We document that different combinations between actions and motivations have different impact on life satisfaction thereby providing support for the relevance of these specific "contingent goods" and to the literature of procedural utility. Our findings are confirmed in robustness checks including refinements of the dependent variable, instrumental variables and sensitivity analysis on departures from the exogeneity assumption.