Agglomeration economies in European regions: perspectives for objective 1 regions

Economic growth is one of the main European policy objectives of structural funds targeted at objective 1 regions. In an empirical analysis on growth differentials over 219 European regions between 2000 and 2010, we find that – controlled for other determinants – objective 1 regions grow in productivity due to higher degrees of specialisation, while other regions grow faster in employment, being embedded in a diverse economic environment. We argue that the type of agglomeration economies in combination with the structure of the economy is crucial for future long-term development prospects of regions – and that especially the larger objective 1 regions should diversify their economy more to reap long-term convergence prospects. This outcome favours a focus on place-based development, as advocated recently by the European Union