Real Convergence in the Euro Area: A Long-Term Perspective

102 Pages Posted: 5 Dec 2017

See all articles by Juan Luis Diaz del Hoyo

Juan Luis Diaz del Hoyo

European Central Bank (ECB)

Ettore Dorrucci

European Central Bank (ECB)

Frigyes Ferdinand Heinz

European Central Bank (ECB)

Sona Muzikarova

European Central Bank (ECB)

Date Written: December 1, 2017

Abstract

In the euro area, there is mixed evidence that the GDP per capita of lower-income economies has been catching up with that of higher-income economies since the start of monetary union. The significant real convergence performance of some of the most recent members contrasts with that of the economies of southern Europe, which have not met expectations. However, attributing all the blame for this outcome to the introduction of the single currency simply misses the point. By taking a “long view” and reviewing the evidence since the 1960s, this paper shows that certain member countries began to face a “non-convergence trap” long before the euro years. We also provide stylised facts on: (i) the central role of total factor productivity in driving real convergence in the euro area over time, alongside other factors; and (ii) the crucial interaction of real convergence with “Maastricht convergence” and institutional quality, the other two key components of sustainable economic convergence. We conclude that it is critical that the euro area countries facing convergence challenges enhance the resilience of their economic structures by improving the relevant institutions and governance.

Keywords: sustainable economic convergence, real convergence, nominal convergence, GDP per capita, Maastricht convergence criteria, institutional quality, labour productivity, total factor productivity, Five Presidents’ Report, Reflection Paper on the Deepening of EMU

JEL Classification: E01, F15, J11, O11, O43, O47, O52, O57

Suggested Citation

Diaz del Hoyo, Juan Luis and Dorrucci, Ettore and Heinz, Frigyes Ferdinand and Muzikarova, Sona, Real Convergence in the Euro Area: A Long-Term Perspective (December 1, 2017). ECB Occasional Paper No. 203, ISBN: 978-92-899-2865-6, Available at SSRN: https://ssrn.com/abstract=3082205

Juan Luis Diaz del Hoyo (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Ettore Dorrucci

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 13440 (Phone)
+44 69 1344 6000 (Fax)

Frigyes Ferdinand Heinz

European Central Bank (ECB) ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
8219 (Phone)
6320 (Fax)

Sona Muzikarova

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
240
Abstract Views
999
rank
160,540
PlumX Metrics