Government quality and regional growth in the enlarged European Union: Components, evolution and spatial spillovers

This paper investigates the relationship between government quality and regional economic growth in 207 EU-28 regions during the period 2010-2016. We use the European Quality of Government Index, based on the pillars of quality, impartiality and corruption and provide results for both the aggregated index and its three components. We find a negative evolution of government quality across regions over the studied period. Overall, the econometric results suggest that improvements in the quality of government positively contribute to economic growth, although larger impacts are found for EU-15 regions in comparison with regions from countries that joined the European Union after 2004. When analyzing different components of government quality, corruption and impartiality appear as the main drivers of growth, whereas weaker evidence is found for the quality of government services. Finally, we find that spatial spillovers matter, as a great proportion of the effect of government quality on growth is indirect.