With increasing dematerialization, traditional economic mechanisms of gradual dynamic adjustment and spatial spillovers could well become irrelevant, at the same time that the nation-state withers in importance. In Discussion paper No 1286. Research Fellow Danny Quah provides a first step in quantifying the importance of nation-state and spatial-spillover factors on economic well-being across regions in Europe. For this analysis, he uses an empirical model of dynamic (cross-region, income) distributions. Technically, the paper seeks characterizations of a sequence of distributions in terms of their long-term and their convergence behaviour; the current work improves on earlier related investigations in applying a conditioning operation to the distribution dynamics - the conditioning is one that is naturally suggested by the issues being studied here.

In the paper he investigates how close, in their economic performance, European regions are to being like isolated islands. This paper looks at the dynamic implications for convergence - poorer regions catching up with richer ones - of the dematerialization scenario described above. In carrying out this investigation, the paper ends up providing a detailed picture of the dynamics of spatial and national income distributions across Europe. The paper finds that spatial-spillover factors matter more than do national, macroeconomic ones. Both, however, have been important historically. One interpretation of these findings is that the dematerialization concerns above are empirically irrelevant. The other interpretation is that those forces have not yet come into play and that what has been estimated here simply calibrates the magnitudes of changes to come.