Spatial interaction and economic growth: a case of OECD countries

Evcim and Yesilyurt Future Business Journal https://doi.org/10.1186/s43093-023-00270-9 (2023) 9:102 Future Business Journal Open Access RESEARCH Spatial interaction and economic growth: a case of OECD countries Nurgül Evcim1 and M. Ensar Yesilyurt1*    Abstract The Solow residual has presented an opportunity to researchers who have been attempting to explain the unexplained share of output. In pursuing this goal, the literature has relied on different models, estimators, and data sets. One such application is spatial models to estimate growth, but it remains rare in the literature. Such models allow us to determine whether the interaction among countries is significant. Additionally, it is possible to observe efforts to mimic different variables among countries thanks to indirect (spillover) effects. Therefore, using spatial models and data sets on founding OECD countries for the period 1996–2019, this article tests alternative weight matrices to clarify the mutual relationship among countries. The findings reveal that spatial models contribute to estimations by improving parametric results. Empirical evidence found that there are spatial interactions among countries. The spillover effect of technology growth is insignificant, while the direct effect is significantly positive. Investment growth is significantly positive except spillover effect. Human capital growth is significantly positive in any sense. Keywords Regional economic growth, Technological innovation, OECD, Spatial analysis, Spatial Durbin model Introduction In the last century, increasing academic interest and effort have been devoted to economic growth. Following the introduction of the models of Harrod [29] and Domar [12], the Solow [67] and Swan [70] models opened a new avenue, and subsequent models began to test additional control variables. During this period, sources of economic growth were clearly defined in general, and capital was disaggregated into physical and human capital. Moreover, following the economic fluctuations created by dramatic technological developments that required better-endowed labour, new types of models of economic growth were developed to incorporate variables capturing new requirements and developments. There has been a wide variety of applications ranging from cross-sectional to panel data sets, from standard estimators to more comprehensive estimators, or from basic *Correspondence: M. Ensar Yesilyurt 1 Department of Economics, Pamukkale University, Denizli, Turkey theoretical models to extended or nontheoretical models. Economic growth theory and its applications are deserving of such academic attention because it is the key to human existence and the world, although perspectives differ on how it can be made sustainable or if that is possible. Some researchers contend that the growth path that the majority of the world desires is not sustainable, despite the formation of a new equilibrium tendency after any crisis, and it has been argued that advanced technologies will ensure a balance between supply and demand. On the other hand, the Solow growth model is used as a benchmark model to attempt to understand the mechanism underlying growth. However, it has been noted that it cannot explain 85% of the source of growth. Therefore, subsequent researchers added missing components to growth models and sought to find the best-fitting models and estimators for the available data sets. Although the literature has been dramatically improved, there is room for further contributions, especially regarding interactions between countries in addition to the standard dependent–independent relationship. In this study, © The Author(s) 2023. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. Evcim and Yesilyurt Future Business Journal (2023) 9:102 we would like to investigate if the contiguity relationship affects the growth path of the founder countries of the OECD and if indirect effects are valid. Considering these facts and developments and in light of several attempts to estimate economic growth using analogous models with different estimators, the contribution of the present study is as follows: Although various estimators have been used to estimate economic growth, spatial models remain rare, and according to the literature, if there is spatial dependence among units and if it is ignored, the estimation results may be biassed. Therefore, as test results indicate that there is spatial dependence among the countries we analyse, we robustly estimated economic growth using spatial models in addition to ordinary least squares (OLS). While Ertur et al. [15], Pribauer and Cuaresma [54], Seya et al. [64], Soundararajan [68] and estimated spatial models, they used only one weight matrix. Additionally, some spatial models allow us to separately estimate spillover (indirect) effects. Estimating such effects allows the researcher to observe mimicking technology and the interaction of human capital, investment, and population growth among countries. To this end, we rely on Nonneman and Vanhoudt’s [49] model by using spatial econometric tools. Depending on this, the sign and significance of some variables change when spatial models are used that are more reliable to the theory, which may help us to understand the nature of growth. The structure of the paper is as follows: In the next two sections, we present a brief review of some aspects of the relevant literature and detail economic/econometric theoretical models and data sets. Then, we discuss the results of our empirical analysis, and the final section presents the conclusions. The literature overview Following the pioneering attempts to create a neoclassical mathematical representation of economic growth by Harrod [30] and Domar [12], Solow [67] and Swan [70] advanced the field, and studies on exogenous economic growth emerged. Although their efforts received academic attention over time, critiques began to emerge. For example, it was argued that the Solow model failed to properly explain income differences among countries, and the Solow residual, the share of output left unexplained, has been heavily criticized [48, 45]. The facts and evidence (...truncated)