Economic Growth in European City Regions

Abstract

This paper examines what regional characteristics drove economic growth throughout the European Union during the past decade and at what pace convergence proceeded in different regions of the new member states in Central and Eastern Europe. For a precise view of regional economic differentials, the analysis focuses on city regions, using the Urban Audit database provided by the European Commission as a source. Thus far, there is a lack of studies on Europe-wide urban economic differentials and dynamics. After the EU expansion of 2004, economic growth accelerated considerably in the least-developed peripheral regions, but also in the wealthier capital cities of the new member states. The growth analysis, which controls for various city characteristics, a basic city typology, and groups of countries, suggests that in the medium term economic development in Central and Eastern Europe is likely to concentrate in capital cities before it can disperse to peripheral regions. Robustness checks incorporating spatial weights and panel methods confirm the main findings. Regional policy may promote convergence if it supports the infrastructure for education and innovation in the most accessible cities and encourages utilization of these facilities within broader regions.