Counterfactual Distribution Dynamics across EuropeanRegions

This paper proposes a methodology which combines elements of parametric regression analysis with the nonparametric distribution dynamics approach in order toanalyse the role of some variables in the convergence of productivity across European regions over the period 1980-2002. We find that the initial productivitycrucially accounts in the convergence process across European regions. Differently,employment growth seems not to play a role, while the Structural and CohesionFunds seem to play a positive role, even though such effect seems to be very low andstatistically significant only at the low bound of the range of initial productivity.The structural change of regional economies plays a positive role, but such effect isstatistically significant only for the least productive regions. The output composition of a region in 1980 affects the convergence process of productivity growth inseveral ways. In particular, the share of non market services on output acts like asource of convergence from 1980 to 2002 but in the long-run it plays a negligiblerole. Finally, the share of finance acts like a force of divergence across Europeanregions, especially for the least productive regions.