Analysis of Convergence Patterns: Are the EU New Member Countries Converging?

Abstract

This paper investigates the growth composition and convergence of the annual GNI in the EU-28 from 1995 until 2016. To do so, we computed a growth accounting exercise to estimate the contribution of labor, capital and TFP when assuming the same production function for all the EU-28. Also, we scrutinized the σ and β-convergence (unconditional and conditional) using, respectively, the coefficient of variation and Arellano-Bover/Blundell-Bond estimator for dynamic panel data. We compared the rate of growth of the CEEC-3 with the EU-25 introducing an interaction term. From the conditional β-convergence, we detected which factors have been the main drivers of growth during the period analysed. Results show higher magnitude of capital and TFP composition in the GNI growth for the EU-28. Moreover, we found evidence of σ and β-convergence among the EU-28, with the CEEC-3 growing faster than the EU-25 when considering the same level of initial GNI. Furthermore, from the conditional β-convergence empirical analysis, the factors which have been driving growth were our proxies for human capital, innovation, institutions and GVCs.