Measuring externalities in regional growth: an empirical approach

This paper focuses on the dynamic effects under which the regional economic processes are accomplished, breaking them down into two broad types: neighborhood (horizontal) and economywide (vertical) externalities. So, by means of a proposed dynamic space-time empirical model, it is allowed to obtain the vertical and horizontal competition structure within a regional economic system. Co-integration/error correction modeling techniques are used to support the existence of the competition structure over both the shortand long-term. As an application, we show the dynamic effects on the evolution of the regional performance of Spanish regions over the period 1972-2000. Our results indicate that some macroeconomic forces are operating into this Spanish system: positive and negative externalities at both economy-wide and neighborhood levels. Findings show that a new taxonomy of the Spanish regions could provide some guidance as to the measures regional economic policy.