What drives unemployment disparities in European regions? A dynamic spatial panel approach

What drives unemployment disparities in European regions? A dynamic spatial panel approach. Regional Studies. This study analyzes unemployment differentials in European regions during the period 2000-11. To that end, a theoretical model with substantive spatial interactions among regions is developed. The solution implies a dynamic-spatial Durbin model specification including regional and institutional-level factors as explanatory variables. In conjunction with dynamic-spatial panel estimates, relative importance metrics are used to quantify the effect of regional disequilibrium, equilibrium and national-level factors. Relative importance analysis suggests that during the pre-crisis period, unemployment disparities were mainly driven by regional-level equilibrium factors. Nevertheless, labour market institutions are of major importance to explain increasing disparities during 2009-11.