Output convergence in the central and eastern European member countries

Ingianni, Andrea (2010) Output convergence in the central and eastern European member countries. (PhD thesis), Kingston University, uk.bl.ethos.531356.


This thesis is concerned with the question of whether recently joining member countries are converging on European Union norms for per capita GDP. In par-ticular, we focus on the "convergence debate" that has developed within growth theory. In order to find an answer, we look for a testing framework that is coherent with mainstream theoretical models and we investgate why such convergence may have happened. Firstly, we employ a variety of approaches to test whether economies actually reach a steady state as a consequence of catching-up and we argue that, if this condition is not satisfied, convergence may not happen at all in the long run[sup]1. Secondly, we investigate the role of trade openness, motivated by the failure of early theoretical models to recognize its effects on growth. Again, we give particular attention to the the long-run and the supply-side of our economies. Empirical results suggest that there is evidence of catching up in the period under investigation, but no conclusive indication of long-run convergence. We also observe little signs the latter was caused by intra-EU trade openness which, in turn, helped growth. These findings are evidence that EU policies were effective in the short-run. Therefore, the EU should continue its long-run effort of guiding new members' convergence towards a common steady state. In particular, targeting foreign direct investments, as suggested by the existing literature, may be more effective than focusing on the integration of the EU goods market. Finally, the Solow-Swan growth theory proved a reasonable tool to understand convergence in the enlarged EU, with no compelling need to open the model to trade or endogenize technological progress. [sup]1This conclusion wouid invalidate the predictions of the neoclassical growth model.

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