The evolution of economic convergence in the European Union

Abstract

Reproduction permitted only if source is stated.ISBN 978-3-86558-941-5 (Printversion) Non-technical summary Western European countries took major steps toward economic integration in recent decades, including the liberalization of capital and labor markets and the foundation of the European Economic and Monetary Union (EMU). The 1992 Maastricht Treaty set an agenda for macroeconomic convergence prior to entering the monetary union, and the European Commission has put forward numerous policy initiatives aimed at the reduction of regional economic disparities and improving competitiveness among EU members. Meanwhile, in Central and Eastern European countries (CEEC) important political and institutional changes were undertaken in the 1990s. These involved sizable macroeconomic adjustment processes, e.g., transition from planned to market economy, liberalization of prices, and privatization of state assets.Starting from the hypothesis that closer economic integration between countries may lead to increased real income per capita convergence, this paper investigates convergence in real incomes per person between the 27 current member states of the EU for the time horizon 1970-2010. We employ an empirical convergence test derived from a neoclassical growth model augmented with endogenous technological progress which differs across countries and over time. The model implies that the transition path of each economy toward the steady state level of per capita real income depends on country-specific technological growth rates. This approach enables us to study various types of economic transition behavior, e.g., temporary divergence followed by catching-up and convergence. In addition, the convergence test is applied in an iterative manner in order to identify convergent country groups, or so-called 'convergence clubs'.Our results offer important insights on the economic catch-up exhibited by the new EU members in light of the institutional changes and macroeconomic adjustment processes experienced in recent decades. The main results can be summarized as follows. We do not find overall real income per capita convergence in the EU. This result is robust to any time horizon considered. Instead, we discover country groups that converge to different income levels in the long-run. Regional linkages seem to play a significant role in determining the formation of convergence clubs. Yet, eurozone countries belong to distinct subgroups, thus clustering is not necessarily related to EMU membership. Moreover, there is a clear separation between the CEEC and the old EU members in the long run, suggesting that, even though the CEEC have exhibited higher real income growth than the EU average over the last 40 years, catching up was not sufficient in order to eliminate cross-country real income per capita differences. Finally, we observe a South-East vs. North-West division of European economies by the mid-nineties.Our results draw attention to the lack of growth-enhancing structural reforms in EU countries, posing a threat to the achi...

The heterogeneity of convergence in transition countries

“…Since panel data techniques are commonly used in estimation, researchers often decide to divide panels into more homogenous a priori subgroups, like EU15, EMU, CEE, SEE, CIS, the Visegrad group, Baltic States and others. Borsi and Metiu (2015) investigate economic convergence in real income per capita between 27 EU countries in 1970-2010 using a non-linear latent factor framework. Their results suggest no overall real income per capita convergence in the EU, but subgroups that converge to different steady states are identified using an iterative testing procedure.…”

Towards Healthier Life: Changes in growing of health-friendly food crops and products in Lithuania before accession to EU and after

“…Main Lithuanian fruits and berries import partners after accessing EU became Spain and Italy. It corresponds to some alternative economic ideas [56] that newly accepted EU members become an open market for products from older member states.…”

Economic convergence in ageing Europe

“…Particularly, the "success story" could be heard in the context of Eastern-European regions catching up with the advantageous regions of the older EU states (Bosker, 2009). Multiple studies have found evidence of decreasing income disparities over time in Europe, both before and after the EU enlargement (Borsi and Metiu, 2015;Ezcurra et al, 2005;Ezcurra and Rapún, 2007;Fingleton, 1999;Maza et al, 2012;Monfort, 2008;Neven and Gouymte, 1995). However, a notable part of the reduction in regional disparities that is attributed to the Cohesion Policy, may have been explained by different dynamics in regional population structures that most studies on economic cohesion tend to overlook (Crespo Cuaresma et al, 2014a).…”