Development Differentials and Interaction Effects in the European Regions: A Study Based on the Regional Lisbon Index

This paper investigates regional development dynamics in a sample of 254 NUTS 2 European Union regions over the period 2000-2010. To that end, we propose a new version of the regional Lisbon index containing changes with respect the index developed by Dijkstra. The regional Lisbon index includes employment, education and R&D indicators. Targets for these indicators are related to an action and economic development plan for the EU regions and have been incorporated into European Regional Policy programming. The analysis of regional development is based on the estimation of the spatial Durbin model, containing endogenous and exogenous interaction effects. We compare the performance of different specifications of the spatial weights matrix describing the spatial arrangement of the sample regions finding evidence in favour of an exponential-decay distance matrix. Using this matrix, we determine the extent to which a change in a covariate in a particular region affects development in other regions.