Real Convergence In The European Union: “New” Versus “Old” Member States

Abstract

The recent waves of enlargement of the European Union have created not only opportunities, but also challenges, emphasizing the complexity of the integration process and the difficulty to assure cohesion between Members. The aim of this paper is to examine real convergence in an enlarged European Union and to conduct a comparative analysis between the New (13) and the Old Members (15). In this respect, we have studied absolute and conditional convergence between 1995 and 2019, taking into consideration the level of GDP per capita. The methodological tools of the research were β-convergence based on cross-sectional and panel regressions and σ-convergence. The results of our study confirm the 2% law of convergence within the European Union between 1995 and 2019. However, the analysis of the economic performances among the New and Old Members led us to opposite results: while the catching-up speed among the New Member States reached on average 2.7%, in the Old Members we didn’t identify a statistically significant relationship between the initial income and the subsequent growth rates. In order to account for economic and social differences between the Member States, we have examined conditional convergence, illustrating the defining role of investment, trade and labor productivity in catalyzing convergence both in the New and Old Members. In contrast, the empirical study suggests that an increased level of public expenditures and over-indebtedness within the European Union threaten the catching-up process. The results of our paper can be useful for the European decision makers, illustrating the factors that might contribute to the achievement of the objective of real convergence within the European Union. Keywords: real convergence, European Union, New Member States, β-convergence, σ-convergence.