Identification and estimation of club convergence models with spatial dependence

This article deals with heterogeneity and spatial dependence in economic growth analysis by developing a two-stage strategy that identifies clubs by a mapping analysis and estimates a club convergence model with spatial dependence. Since estimation of this class of convergence models in the presence of regional heterogeneity poses both identification and collinearity problems, we develop an entropy-based estimation procedure that simultaneously takes account of ill-posed and ill-conditioned inference problems. The two-step strategy is applied to assess the existence of club convergence and to estimate a two-club spatial convergence model across Italian regions over the period 1970 to 2000.