Volatility and Regional Growth in Europe: Does Space Matter?

Abstract

This paper examines the relationship between output volatility and regional growth in Europe. To that end, we present a spatially augmented stochastic growth model with technological interdependence among economies. Spatial externalities are used to model technological interdependence, which ultimately implies that the economic growth rate of a particular region is affected not only by its own degree of volatility but also by the output fluctuations experienced by the remaining regions. In order to investigate the empirical validity of this result, we examine the link between volatility and economic growth in a sample of 272 European regions over the period 1991-2011 using spatial econometric techniques. Our estimates show the existence of a negative and statistically significant relationship between volatility and economic performance in the European regions. This is partly due to the role played by spatial spillovers induced by volatility in neighbouring regions. The observed relationship is robust to the inclusion in the analysis of different explanatory variables that may affect both regional growth and business cycle fluctuations. We also check that our results do not depend on the measure or volatility used in the analysis or the econometric specification employed to capture the nature of spatial spillovers.Volatilité et expansion régionale en Europe: l'espace est-il important?RÉSUMÉ la présente communication se penche sur les rapports entre la volatilité de la production et l'expansion régionale en Europe. À cette fin, nous présentons un modèle d'expansion stochastique accrue sur le plan spatial, présentant une interdépendance technologique entre les économies. On fait usage d'externalités spatiales pour modéliser l'interdépendance technologique, ce qui implique au bout du compte que le taux d'expansion économique d'une région est affecté non seulement par son propre degré de volatilité, mais aussi par les fluctuations de production relevée dans les autres régions. Afin d'examiner la validité empirique de ce résultat, nous examinons le lien entre la volatilité et l'expansion économique dans un échantillon de 272 régions d'Europe au cours de la période 1991-2011.Volatilidad en el crecimiento regional en Europa: ¿El espacios importante?RESUMEN este estudio analiza la relación entre la volatilidad de la producción y el crecimiento regional en Europa. Con este propósito, presentamos un modelo de crecimiento estocástico ampliado de manera espacial con la interdependencia tecnológica entre las economías. Las externalidades espaciales se usan para modelar la interdependencia tecnológica, lo que en última instancia implica que la tasa de crecimiento de una región particular se ve afectada no solamente por su propio grado de volatilidad, sino también por las fluctuaciones de la producción que experimentan las regiones vecinas. Con el fin de investigar la validez empírica de este resultado, examinamos la relación entre la volatilidad y el crecimiento económico en una muestra de 272 regiones europeas durante el perio...

Development, contributions and trends in regional studies in Spain: An overview

“…Here too, the progress and methodological innovations of the analyses conducted have been a notable feature. Among these it is worth to highlight the work of Ezcurra and Ríos (), who studied the effect of growth volatility using a stochastic endogenous growth model, with interaction effects between regions and utility functions that captured different patterns of risk aversion. The paper analysed a sample of 272 regions during the period 1991–2011 and considered the factors that could explain the disparity in results reported by other works on the topic.…”

Employment volatility in lagging and advanced regions: The Italian case

“…Some studies also address the issue in Europe. Ezcurra and Rios (2015) concentrate on relationship between volatility and regional growth in the period 1991-2011, while Fiaschi, Gianmoena, and Parenti (2017 study the determinants, especially macroeconomic and sectoral, of GDP fluctuations in Europe in the period 1992-2008.…”

Growth‐instability frontier and industrial diversification: Evidence from European gross value added

“…The empirical evidence is mixed. Studies of volatility and growth resulting from regional and/or industrial diversification have been done by Ramey and Ramey (1995), Imbs (2007), Falk and Sinabell (2009), and Ezcurra and Rios (2015). Ramey and Ramey (1995) examined data for 90 countries between 1960 and 1985 and found, in fact, that the highest output volatility was observed in countries with the lowest economic growth rates.…”