Abstract

Most of the recent contributions analysing the regional disparities in growth have stressed on the convergence equation which derived from the traditional neoclassic model of Solow (1956). However, this type of approach presents the main drawback that is the lack of consideration for increasing returns to scale, which are at the origin of endogenous growth and new economy geography models. In that purpose, we find more appropriate to use Fingleton’s (2001) model. We develop a spatial model to endogenously detect the presence of spatial externalities and to estimate their effect on regional growth. We extend this specification to a panel of 26 euro Mediterranean countries over the period 1995-2004. Results of estimation with recent tools of spatial econometrics permit to detect the presence of increasing returns to scale. In addition, we conclude that the external effects are geographically burned and they are associated to a substantive phenomenon meaning that the growth in a country depends on the growth in neighbouring countries via pecuniary and technological externalities. These results are related to the predictions of endogenous growth theory and new economy geography model.

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