We examine the role of spatial spillovers in economic growth for the Middle East and North Africa (MENA) region. We explicitly model spatial interactions that may arise from geography, bilateral trade, or institutional similarities, and ask how much they are likely to matter for growth externalities and spillover effects. We find that the economic growth of a MENA country is positively affected by the economic growth of countries that are geographically close and that have similar institutional characteristics. The spillover effects of growth are due to economic activities in countries that trade primarily in oil, which accounts for the gap in spillover effects due to institutional similarity between resource‐rich and resource‐poor countries in the MENA region. However, trade linkages matter less. Where they do have an effect, it is through the local range effects of a spatially lagged explanatory variable capturing the effects of the trade balance on growth.

This chapter presents a spatially augmented growth model that includes technological interdependence among regions to consider locational and neighbourhood effects on growth. The role of space, which can be defined in several ways, plays an important role in economic growth processes. The different types of tests allow the authors to determine the spatial dependence in regional data and specify an appropriate model. The characteristics of neighbours may stimulate or hamper the economic growth rate of a country. The spillover effects of a country are a substantial issue for a regional perspective in the economic growth process. The economic growth of a country is affected by the performance of growth rate of its neighbours. The economic growth rates depend on both region and neighbouring region characteristics, the weight matrix, which shows the spatial connectivity structure of regions and the strength of spatial dependence based on model specification.