A Pair-Wise Approach to Per Capita Output Convergence between European Regions

We apply Peseran (2007) pairwise approach of convergence to 195 European regions for the period 1980-2002. An index of convergence shows a decline in the average per capita output gap over the period, mainly by convergence between regions of different countries. Next, we estimate the share of stationary per capita output differentials among all possible pairs of regions. This share is expected to be high as possible in case of convergence. Several unit root tests give no evidence of convergence because most differentials contain a stochastic or a deterministic trend. Bootstrap simulations show that the accuracy of the results from unit root tests is satisfying. A stationary test gives results more favorable to convergence. Convergence is however restricted to a limited set of European regions. Finally, we test for structural breaks but don't find stronger evidence of convergence