Analysis of spatial dependencies and spatial effects in the relationship between economic growth and unemployment in Europe

The study presents an analysis of the relationship between unemployment and economic growth in European countries. The significant influence of the labour market situation on the economic condition of states is well-known. The analysis in this research was conducted using data from 43 selected European countries from 2006 to 2019. To evaluate the relationship between economic growth and the unemployment rate, enriched with spatial dependencies, spatial models for pooled time series and cross-sectional data (TSCS) were estimated. The neighbourhood was quantified using three types of connection matrices: (1) based on the common border criterion, (2) based on the maximum distance criterion, and (3) based on the similarity in socio-economic situations. Matrices (1) and (2) relate to the geographical neighbourhood, while matrix (3) defines the economic neighbourhood based on the values of the Human Development Index. The choice of these types of matrices was associated with the migration process (geographical neighbourhood) and the imitation effect of labour market strategies (economic neighbourhood) mentioned above. Based on the estimation and verification results of the Spatial Durbin Models (SDM), the spatial spillover effects were evaluated. Cumulative spatial effects allowed us to determine countries with the greatest influence on others and countries that are following the leading ones.