Some alternative geo-economics for Europe's regions

In recent years we have seen major advances in economic geography theory, but only limited empirical analysis. This paper focuses on a spatial econometric modelling approach, informed by recent theoretical advances, to simulate possible economic geographies of the European Union. In the paper I show that a policy-induced boost to demand in peripheral economies could increase manufacturing productivity growth rates and levels across all regions, including the EU core as a result of spillover effects across regions. On the other hand faster core growth also spills over to the periphery raising productivity growth and levels, but is associated with diminishing rather than increasing periphery employment levels and with increased inequality. The best strategy seems therefore to encourage higher periphery growth rates, but not so high that they are unsustainable and themselves the cause of increased regional inequality.