Relatedness, Economic Complexity and Convergence Across European Regions

The aim of this paper is to analyze how the heterogeneous structure of the European re-gions has affected their patterns of convergence or divergence. We analyse data collected by Eurostat, from a balanced panel of 191 regions and 55 economic branches over the peri-od 2003-2015. In this way, we are able to describe and capture technological proximity across the regions and analyse how it has evolved over space and time. Limiting the analy-sis to the manufacturing activities, we are also able to measure the degree of economic com-plexity of the regional production systems and assess how this affects their patterns of growth. Our findings suggest that spatial effects tend to push towards convergence, with the East-ern regions that started from relatively low levels of GDP per capita and experienced higher growth rates. Nevertheless, the different level of economic complexity tends to widen the gaps between territories: for example, the German regions, whose economic structures are more complex, have kept on widening the gap between themselves and the other European regions. The two different forces are also interconnected as the Eastern regions combine a relatively low level of GDP per capita with a significant level of economic complexity. Dur-ing the period considered, the improvement in living standards has corresponded to the upgrade of their manufacturing production structures.