Measuring regional economic transformation: Which European regions are leading the competitiveness and sustainability challenge?

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This paper proposes a novel methodology to measure economic transformation at the regional level over the period of 2009-2022. We define economic transformation as the combination of both structural change and industrial transition, and we measure this against two key relevant issues: the ability of European regions to compete successfully in global markets, and their ability to move towards a greener economy by reducing their emission intensity. Based on the work of Santos et al. (2023) we built a single indicator - Annual Competitive and Sustainable (ACAS) Index – and then examine the drivers of such economic transformation using a Zellner’s seemingly unrelated regression. The main results highlight the strong sectoral and territorial heterogeneity across Europe. Structural changes (shifts between economic sectors) and industrial transitions (shifts within sectors) occur simultaneously, but with very distinct patterns. The results also highlight the differentiated roles of human and physical capital, economic development, and demographic dynamics in shaping the transition towards competitive and sustainable economic structures.