Real Convergence in the Euro Area: Mirage or Reality?

Abstract

The aim of this paper is to study the convergence patterns in the European Union and the Euro Area between 2000 and 2019 by means of the absolute and conditional β- and σ-convergence, considering cohesion not opposite but complementary to competitiveness. By estimating cross-sectional regressions, we have found evidence favouring the absolute β-convergence for the Eurozone (19) and the European Union, illustrating that the initially poorer members experienced higher GDP per capita growth rates than the developed economies. The average catching-up speed recorded between 2000 and 2019 in the European Union was 2.5%, while in the Eurozone (19), it was 2.3%. Based on panel data and seemingly unrelated regressions, we have illustrated that improvement in the competitiveness of Member States by promoting investment, trade openness, high levels of labour productivity, education and the implication of citizens in society positively influenced the GDP per capita growth rates between 2000 and 2019. Finally, the estimation of σ-convergence based on the standard deviation led us to conclude that income gaps narrowed across the European Union and the Eurozone (19) between 2000 and 2019, having, in contrast, an upward trend among the early adopters of the euro. The original elements of the paper derive from the comparative analysis of convergence in the Euro Area and the European Union and the study of the economic growth process from the perspective of competitiveness-related variables. In this respect, the study emphasizes the role of human capital in generating prosperity gains at the Community level.