Empirics on real convergence within European Union: Is growth in EU sustainable?

Abstract

Empirical analysis of the real convergence between old (EU15) and new (EU8) economies is the basic focus of this paper, which should importantly contribute to the extensive empirical literature. The basic motivation for the present analysis is mixed results regarding the convergence process between EU8 and EU15 obtained by different authors. Important contribution to the mixed results is provided by different methodological frameworks used. Therefore, we apply cross-section, panel data and time series framework and test for real convergence between the EU8 and EU15 economies. The obtained results indicate statistically significant negative relationship between average growth of labour productivity and initial value of labour productivity level. However, there is clear absence of systematic convergence between EU8 and EU15 economies. This implies that individual economies from the EU23 group (i.e. EU8 + EU15) converge to its individual steady state, but both group of economies (EU8 and EU15) have different steady states. This result, however, provokes hypothesis that integration of former socialist economies (also termed as advanced transition economies) has not caused the convergence of these economies towards the productivity level of advanced market economies represented as EU15.