This paper analyses macroeconomic developments in the Eurozone since its inception in 1999. In doing so, we document a process of divergence and polarisation among those countries that joined the Eurozone during its first two years. We find evidence for a ‘core–periphery’ pattern among Eurozone countries, that is, however, marked by substantial heterogeneity within these two clusters. We show how the polarisation process underlying this pattern first manifested in increasing current account imbalances, before it translated unto the level of general macroeconomic development when the crisis hit. Empirically, we demonstrate how this macroeconomic divergence is tied to a ‘structural polarisation’ in terms of the sectoral composition of Eurozone countries; specifically, the emergence of export-driven growth in core countries and debt-driven growth in the Eurozone periphery can be traced back to differences in technological capabilities and firm performance. Pushing for convergence within Europe requires the implementation of industrial policies aiming at a technological catch-up process in periphery countries in combination with public investment and progressive redistributional policies to sustain adequate levels of aggregate demand in all Eurozone countries.

This paper surveys measures of economic openness, the latter being understood as the degree to which non-domestic actors can or do participate in a domestic economy. Based on the existing literature, the authors introduce a typology of openness indicators, which distinguishes between 'real' and 'financial' openness as well as 'de-facto' and 'de-jure' measures of openness. They use data collected on these indicators to analyze trends in openness over time and to conduct a correlation analysis across indicators. Finally, they illustrate the potential consequences of employing different openness measures in a growth regression framework.

This paper analyzes the dynamics of structural polarization and macroeconomic divergence in the context of European integration, where the latter is primarily understood as an increase in economic and financial openness. In the process of estimating the dynamic effects of such an openness shock on 26 EU countries, we develop a taxonomy of European economies that consists of four groups: core, periphery, and catching-up countries in Eastern Europe as well as financial hubs. We show that these four country groups have responded in a distinct way to the openness shock imposed by European integration and argue that the latter should be seen as an evolutionary process that has given rise to different path-dependent developmental trajectories. These trajectories are linked to the sectoral development of European economies and the evolution of their technological capabilities. We propose a set of interrelated policy measures to counteract structural polarization and to promote macroeconomic convergence in Europe.