Alicia Gómez-Tello (p), María José Murgui-García, María Teresa Sanchis-Llopis

Burak Turkgulu

Since the Great Recession a new phase of divergence among the European regions started. This time divergence comes from a selected group of wealthiest regions moving away from the rest while most of the regions tend to converge or to get trap in the middle (Gomez-Tello et al., 2020; Ianmarino et al., 2019) or, more worrying, to lag behind in very low-income levels. While the number of regions getting trapped in low income growth soars (Diemer et al., 2022), regional disparities and social unrest unleash political polarization across Europe (Dijkstra et al. 2020; Sielker et al, 2021; Rodriguez-Pose et al., 2024). The success of the most prosperous regions seems to be linked to the start of a new structural change process. This time the dynamism comes from the specialization in high-tech manufacturing or knowledge-intensive services (Camagni et al., 2022; Valentini et al., 2023; Cutrini et al., 2023; Carullo et al., 2025). In this research we propose the use of a new dimensionality-reduction technique to identify convergence clubs taking into account a broader set of regional characteristics, among them industry mix at a 10 level NACE sectors. Specifically, we propose the use of the Uniform Manifold Approximation and Projection (UMAP) method, one of the state-of-the-art methods for dimensionality reduction and data visualization.

Iryna Lagodna, Burak Turkgulu (p)

Kamila Borsekova

Public services play a crucial role in shaping regional business environment and competitiveness. In turn, various factors of competitiveness may likewise influence the quality and efficiency of public services in the regions. This study investigates the relationship between different factors of regional competitiveness and the provision of public services for firms in the EU regional context. Using the data from the Subnational Business Ready (Subnational B-READY) reports, published in 2024 by the World Bank Group, and the EU Regional Competitiveness Index 2022 (RCI 2022), published by the European Commission, we run OLS regressions with fixed effects for 39 EU regions at NUTS2 level.
The empirical analysis confirms strong correlation between the regions’ overall competitiveness and provision of public services for firms. These findings indicate that increasing competitiveness of regions will likely incur improvements in the public services for firms, which in turn lead to more enabling business environment. Furthermore, our findings establish that quality of public services for firms is significantly and positively associated with most individual factors of competitiveness, measured by the RCI 2022, such as infrastructure, labor market efficiency, market size, level of higher education and lifelong learning, as well as innovation and business sophistication. When discussing the positive relationship between an increase in innovation capacity of regions and enhancement and digitalization of local public services, we draw on specific examples of innovative approaches in public service provision in specific regions, identified in the Subnational B-READY studies.
The analysis also reveals that two other important competitiveness factors, institutions and technological readiness, do not directly impact public services for firms at the regional level once country differences are considered. These results suggest that institutions and technological readiness are largely shaped at the national level, and country-wide reforms in these areas may be more effective in fostering better public service provision than isolated regional improvements.

Kamila Borsekova (p), Samuel Korony, Andrés Rodríguez-Pose, Michal Styk, Hans Westlund

Humberto Francisco Silva Spolador

This paper explores the interplay between institutional quality and innovation capacity in shaping regional development across the European Union (EU). Using decision tree
modelling based on the Classification and Regression Tree (CART) methodology, the analysis identifies non-linear relationships and complex interactions among 15 indicators spanning institutions, technological readiness, business sophistication, and innovation. By segmenting 233 regions into clusters with shared characteristics, the analysis improves the existing understanding of how governance structures and innovation ecosystems collectively drive regional competitiveness in the EU. The findings stress how institutional quality —particularly in governance effectiveness and public sector accountability— enables innovation and long-term growth. High-performing regions, particularly in Western and Northern Europe, benefit from the convergence of robust institutions and strong innovation outputs. In contrast, post-socialist regions exhibit innovation potential but face systemic governance deficits, pointing to the need for targeted reforms. The results of the analysis advance the analytical discourse on regional competitiveness by integrating institutional and innovation indicators in a single
empirical framework and underscore the importance of addressing governance and innovation simultaneously to foster balanced and sustainable regional growth across Europe.

Humberto Francisco Silva Spolador (p), André Luis Squarize Chagas , Carlos Roberto Azzoni, André Luiz Ferreira e Silva

Alicia Gómez-Tello

As a prerequisite for achieving environmental protection and sustainable socioeconomic development, the Brazilian economy, particularly its industrial sector, needs to develop the economically sustainable use of its production resources.
Despite the importance of the industrial sector for Brazilian economic development, research evaluating the determinants of total factor productivity (TFP) at the level of economic activities is still relatively scarce in the economic literature. To address this gap, this research develops an econometric model that integrates spatial econometric techniques with stochastic frontier estimation to analyze the evolution of productivity and technical efficiency by segment of activity within the sector. The model explicitly accounts for spatial spillover and spill-in effects, recognizing the interconnectedness of industrial activities across regions and their impact on inefficiency levels.
Additionally, we propose a sustainable productivity index that adjusts traditional productivity measures to incorporate environmental impacts, such as greenhouse gas emissions and other socio-environmental factors. By combining spatial econometric methods with stochastic frontier analysis, this framework captures both direct and indirect effects of inefficiencies, enabling a more nuanced understanding of regional disparities in technical efficiency and their environmental implications.
The development of these empirical models offers valuable insights for guiding public policies, fostering regional cooperation, and stimulating demand from public agencies and private entities for more comprehensive data on this sector. This approach promotes one of the strategic sectors for sustainable development in Brazil, aligning industrial productivity with environmental and socioeconomic objectives.