Real Convergence in the European Union. Bridging the Gap between the New and Old Member States

Ana-Maria Holobiuc

doi:10.18267/j.efaj.254

Abstract

One of the fundamental pillars of the European Union aims at the convergence of economic performances among its Member States. This objective has become increasingly challenging with the advancement of the integration process from the customs union to the economic and monetary union, from the six founding Members to twenty-seven European states. The aim of this paper is to study real convergence in the European Union between 2000 and 2019 and conducting also a comparative analysis between the New and the Old Members. The methodological tools imply absolute and conditional β- and σ-convergence. By using cross-sectional regressions, we have found evidence in favour of the absolute β-convergence hypothesis, as the initially poorer Members experienced higher GDP per capita growth rates than the developed economies. The average catching-up speed in the European Union was 2.5%, while the Central and Eastern Members experienced a higher convergence rate, which reached 3.6%. Moreover, by applying panel regressions, we have found evidence supporting the conditional convergence hypothesis, the study emphasising the role of macroeconomic, social, and governance-related variables in promoting economic growth. Our research suggests that investment and trade had a major role in enhancing economic growth both at the aggregate and subgroup level. Finally, the paper illustrates that β-convergence was accompanied by a reduction of disparities within the European Union. However, the global financial crisis hampered the convergence process among the Old Members. The paper suggests that although the Central and Eastern European countries made important progress in terms of catching-up, convergence of economic performance in the European Union has not been reached so far. By contrast, the modest growth rates and the exacerbation of income differentials between the Old Members might call into question the perspective to achieve this objective in the short term.

Highlights

Being initially established from the initiative of six countries as a customs union, the European project has rapidly advanced in terms of both enlargement and deepening, comprising nowadays twenty-seven European countries under the principles of an economic and monetary union
The main purpose of this paper is to study real convergence in the European Union while conducting a comparative analysis between the eleven New Members from Central and Eastern Europe (CEE) and the Old Members by taking into consideration absolute and conditional β- and σconvergence
The negative slope of the trend line confirms the assumptions of the neoclassical growth model, which implies that the initially poorer economies experienced higher growth rates compared to the advanced economies

Summary

Introduction

Being initially established from the initiative of six countries as a customs union, the European project has rapidly advanced in terms of both enlargement and deepening, comprising nowadays twenty-seven European countries under the principles of an economic and monetary union. The main purpose of this paper is to study real convergence in the European Union while conducting a comparative analysis between the eleven New Members from Central and Eastern Europe (CEE) and the Old Members (the founding Members and the European countries that have joined the European Union before the 2000s) by taking into consideration absolute and conditional β- and σconvergence. The eleven New Members from CEE have experienced a higher convergence speed compared to the Community average that reached on average 3.6%. We did not find robust evidence in favour of absolute β-convergence in the Old Members cluster, the results of the regression analysis indicating rather divergent trends among these economies

Objectives

Results

Conclusion