The Evolution of Economic Convergence in the European Union

30 Pages Posted: 21 Jun 2016

See all articles by Mihály Borsi

Mihály Borsi

Ramon Llull University - IQS School of Management

Norbert Metiu

Deutsche Bundesbank

Date Written: 2013

Abstract

This paper investigates economic convergence in real income per capita between 27 European Union countries. We employ a non-linear latent factor framework to study transitional behavior among economies between 1970 and 2010. 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 undertaken over the last 40 years. Our main findings suggest no overall real income per capita convergence in the EU, however, we identify subgroups that converge to different steady states using an iterative testing procedure. Regional linkages play a significant role in determining the formation of convergence clubs. The empirical evidence suggests a clear separation between the new and old EU member states in the long run.

Keywords: Club convergence, Dynamic factor model, Economic integration, Growth, New member states

JEL Classification: C33, O47

Suggested Citation

Borsi, Mihály and Metiu, Norbert, The Evolution of Economic Convergence in the European Union (2013). Bundesbank Discussion Paper No. 28/2013, Available at SSRN: https://ssrn.com/abstract=2796921 or http://dx.doi.org/10.2139/ssrn.2796921

Mihály Borsi (Contact Author)

Ramon Llull University - IQS School of Management ( email )

Via Augusta 390
Barcelona, Barcelona 08017
Spain
0034932672000 (Phone)

HOME PAGE: http://sites.google.com/site/borsimihaly

Norbert Metiu

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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