Assessing the Knowledge Economy : GDP, Productivity and Employment Growth in EU Developed Regions

This paper examines the impact of knowledge endowments on the economic growth of European regions by considering the channels through which they (labor productivity or employment) increase income levels (Per Capita GDP). A wide array of knowledge base indicators are considered here for explaining the growth performance of 150 developed NUTS 2 regions over the period 1995-2002. Their effect is estimated by controlling the occurrence of catching-up (or convergence), the regional structural features, and the presence of spatial correlation. The results show that Per Capita GDP (PCGDP) growth is positively affected by both the R&D intensity and the share of adults with tertiary education. However, while R&D is particularly effective in explaining the growth of labor productivity, the occupation ratio is significantly influenced by educational attainments. The policy message arising from these findings seems quite straightforward for the regions experiencing a virtuouspattern of economic growth, based on increases in both productivity and employment. For those characterized by a trade-off between the latter variables, the policy approach appears to be more problematic. The paper shows that such a trade-off is particularly evident for the developed regions of the Southern European countries