Labour Productivity Polarization Across Western European Regions: Threshold Effects Versus Neighbourhood Effects

The regional distribution of labour productivity in Western Europe is characterised 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 to 2003, intra-distribution dynamics has generated long-run multiple equilibria with the formation of two clubs of convergence. The observed dynamics can only marginally be explained by nonlinear (threshold) effects in the accumulation of physical capital. In contrast, the joint effect of spatial dependence and nonlinearities in growth behaviour play a key role in determining multiple equilibria and reinforcing polarization of labour productivity.