Productivity growth in the Old and New Europe: the role of agglomeration externalities

The recent history of the European Union is characterized by a dual picture showing the Old and the New countries in sharp contrast with respect to several economic dimensions. In particular, regions and industries in Eastern countries have shown an excellent performance whilst Western countries have kept moving on a rather slow track. Our aim is to assess the intertwined performance of regions and industries in New and Old economies within Europe by investigating the dynamics of total factor productivity over the period 1996-2007 and the role played by local externalities in the agglomeration process of economic activities. Among the determinants of local industry growth we analyse the agglomeration externalities and, in particular, we focus on the different impact of the specialisation and diversity externalities. Moreover, we analyse the potential influence of regional intangible assets such as human and technological capital while controlling for other territorial features which may affect the efficiency of the local industry. The empirical analysis makes use of spatial econometric techniques to take into account the possibility of cross-border externalities.