Productivity Polarization across Regions in Europe

The regional distribution of labor productivity in Western Europe is characterized by a core-periphery spatial pattern: high (low)-productivity regions are in a proximate relationship with other high (low)-productivity regions. Over the period 1980—2003, intradistribution dynamics has generated long-run multiple equilibria with the formation of two clubs of convergence. The observed dynamics can be only marginally explained by nonlinear (threshold) effects in the accumulation of physical capital. In contrast, the joint effect of spatial dependence and nonlinearities in growth behavior plays a key role in determining multiple equilibria and reinforcing polarization of labor productivity.