Real Convergence and European Integration: What Factors Make the Difference in Growth at Regional Level?

This paper examines income convergence across Europe during the period 1995-2007 where the last enlargement of the EU and the process of economic integration was in active progress. It is generally accepted that the enlargement of the EU has been followed by the convergence of late comers toward the European average. The author focuses on only the cross-county convergence, but also within-country convergence. He concluded that the remarkable cross-country convergence has tended toward within-country divergence, particularly for Central and Eastern European Countries during the enlargement period. Economic weights of the respective regions in national economies seem to be critical in explaining within-country divergence. High income regions, mostly capital cities, in CEECs are characterized particularly by higher growth rates. It is highly probable that the economic integration has favored those well-off regions at the expense of regions remote from their capitals. This tentative conclusion provides important policy implications not only for European integration, but also for economic integration in other regions, where countries have been seeking diverse regional trade agreements (RTA). Economic integration is largely recognized as a policy option to boost economic growth through trade and investment channels, but economic benefits are likely to be concentrated in certain favored regions, mostly capital regions or industrial areas which have already been enjoying high income levels. Thus, it will be increasingly necessary to develop a mechanism to channel economic benefits to backward regions for within-country convergence.