Abstract
This paper applies a quantile regression approach to examine the growth and convergence process of fourteen EU member states over the period 1986‑2009. From the results of the estimation of an accounting growth regression we conclude that an increase in the weight of the non‑tradables sector and a loss of (price) competitiveness are especially harmful for growth for under‑performing countries, while these benefit the most from physical capital accumulation and are less negatively affected by an increase in government consumption. Additionally, technological convergence is felt less strongly by low‑growth member states. The variables retained are robustly related to growth at all quantiles, but the quantitative importance of the respective coefficients differs across quantiles in some cases. Given the changes in growth rhythms that Portugal recorded throughout the period under analysis, we derive some potential implications from these results for a better understanding of the Portuguese growth and convergence process after European integration. Our findings suggest that, given the growth deceleration that the Portuguese economy has been experiencing since the late 1990s, policies to enhance growth should pay more attention to promoting competitiveness and changing the specialization pattern away from the non‑tradables sectors, as well as to increasing investment.
Highlights
In 1986, Portugal joined the European Economic Community (EEC) that later became the European Union (EU)
There seems to have been a lack of concern by public decision makers with these features of the Portuguese economy throughout the first phase of European integration as the factors that are not included in the estimated model created an environment conducive to high growth relative to the conditions suggested by the variables that are included in the model (see Barreto and Hughes (2004) and Crespo-Cuaresma, Foster, and Stehrer (2011))
6 Usually associated with the former specialization pattern and a result of joining the European Monetary Union (EMU) from the start with the associated real appreciation of the Portuguese Escudo (Bação and Duarte, 2014). These relationships, combined with other un-modelled factors, created the conditions for the growth slowdown Portugal experienced over the last decade and make it more difficult to recover from stagnation. Given this context and the results found that indicate that the size of the impact of the variables considered vary across quantiles, the immediate policy implications that follow for the Portuguese economy are that more attention should be paid to incentives that allow for a change in the specialization pattern away from the non-tradables sector along with measures that induce a real exchange rate depreciation
Summary
In 1986, Portugal (and Spain) joined the European Economic Community (EEC) that later became the European Union (EU). From 1986 to 1998, the Portuguese economy enjoyed a phase of sustained economic growth in which real convergence with the core European economies took place This convergence process was accompanied by the implementation of better macroeconomic policies (associated with the process of nominal convergence on the way to the euro in the 1990s), structural reforms, especially in the financial, labour and product markets, and investments in physical and human capital, and technology enhancing factors Our main aim is to identify the relevant growth determinants for Portugal, as a member of the EU, adding to the literature by applying an estimation methodology we believe more suitable for the period and countries under analysis, the quantile regression technique This estimation approach allows for the identification of different impacts of the explanatory variables across the growth rate distribution.
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