Evaluating the Temporal and Spatial Heterogeneity of the European Convergence Process, 1980-1999

In this paper, we suggest a framework that allows testing simultaneously for temporal heterogeneity, spatial heterogeneity, and spatial autocorrelation in β-convergence models. Based on a sample of 145 European regions over the 1980-1999 period, we estimate a Seemingly Unrelated Regression Model with spatial regimes and spatial autocorrelation for two sub-periods: 1980-1989 and 1989-1999. The assumption of temporal independence between the two periods is rejected, and the estimation results point to the presence of spatial error autocorrelation in both sub-periods and spatial instability in the second sub-period, indicating the formation of a convergence club between the peripheral regions of the European Union. © Blackwell Publishers Inc. 2006.