Regional Convergence Clubs in Europe: Identification and Conditioning Factors

The aim of this paper is to empirically identify convergence clubs in per capita incomes of European regions and to investigate whether initial conditions - as suggested by the club convergence hypothesis - are responsible for the club formation. To tackle this issue, we propose a two-step procedure, where we first endogenously identify groups of regions that converge to the same steady state level and, in a second step, investigate the role of starting conditions and structural characteristics for a region's club membership. Our sample constitutes of 206 European NUTS2 regions from 1990 to 2005. Results strongly support the existence of convergence clubs, indicating that European regions form five separate groups converging to their own steady state paths. Moreover, estimates from an ordered probit model reveal that the level of initial conditions, such as human capital and per capita income, plays a crucial role in determining the formation of convergence clubs among European regions.