A multi-equation spatial econometric model is used to explain variations across EU regions in manufacturing productivity growth based on recent theoretical developments in urban economics and economic geography. The paper shows that temporal and spatial parameter homogeneity is an unrealistic assumption, contrary to what is typically assumed in the literature. Constraints are imposed on parameters across time periods and between core and peripheral regions of the EU, with the significant loss of fit providing overwhelming evidence of parameter heterogeneity, although the final model does highlight increasing returns to scale, which is a central feature of contemporary theory.
- economic geography
- spatial econometrics
- EU manufacturing productivity
- spatial SUR