IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v4y2016i3p16-d75992.html
   My bibliography  Save this article

Convergence and Heterogeneity in Euro Based Economies: Stability and Dynamics

Author

Listed:
  • Philip Haynes

    () (College of Social Sciences, University of Brighton, Brighton, BN1 9PH, UK)

  • Jonathan Haynes

    () (Barcelona Graduate School of Economics, Barcelona 08005, Spain)

Abstract

Cluster analysis is used to explore the performance of key macroeconomic variables in European countries that share the euro, from the inception of the currency in 2002 through to 2013. An original applied statistical approach searches for a pattern synthesis across a matrix of macroeconomic data to examine if there is evidence for country clusters and whether there is convergence of the cluster patterns over time. A number of different clusters appear and these change over time as the economies of the member states dynamically interact. This includes some new countries joining the currency during the period of examination. As found in previous research, Southern European countries tend to remain separate from other countries. The new methods used, however, add to an understanding of some differences between Southern European countries, in addition to replicating their broad similarities. Hypotheses are formed about the country clusters existing in 2002, 2006 and 2013, at key points in time of the euro integration process. These hypotheses are tested using the rigour of a bivariate analysis and the multivariate method of Qualitative Comparative Analysis (QCA). The results confirm the hypotheses of cluster memberships in all three periods. The confirmation analysis provides evidence about which variables are most influencing cluster memberships at each time point. In 2002 and 2006, differences between countries are influenced by their different Harmonised Index of Consumer Prices (HICP) and labour productivity scores. In 2013, after the crisis, there is a noticeable change. Long term interest rates and gross government debt become key determinants of differences, in addition to the continuing influence of labour productivity. The paper concludes that in the last decade the convergence of countries sharing the euro has been limited, by the joining of new countries and the circumstances of the global economic crisis. The financial crisis has driven divergences from pre-existing integration. Country convergence needs to be understood as a dynamic and multivariate concept. This is a significant development of convergence theory and is an addition to how the concept has been understood previously.

Suggested Citation

  • Philip Haynes & Jonathan Haynes, 2016. "Convergence and Heterogeneity in Euro Based Economies: Stability and Dynamics," Economies, MDPI, Open Access Journal, vol. 4(3), pages 1-16, August.
  • Handle: RePEc:gam:jecomi:v:4:y:2016:i:3:p:16-:d:75992
    as

    Download full text from publisher

    File URL: http://www.mdpi.com/2227-7099/4/3/16/pdf
    Download Restriction: no

    File URL: http://www.mdpi.com/2227-7099/4/3/16/
    Download Restriction: no

    References listed on IDEAS

    as
    1. Delphine Irac & Jimmy Lopez, 2015. "Euro area structural convergence? A multi-criterion cluster analysis," International Economics, CEPII research center, issue 143, pages 1-22.
    2. Lein, Sarah M. & León-Ledesma, Miguel A. & Nerlich, Carolin, 2008. "How is real convergence driving nominal convergence in the new EU Member States?," Journal of International Money and Finance, Elsevier, vol. 27(2), pages 227-248, March.
    3. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    4. Martin Grančay & Ērika Šumilo & Jolita Vveinhardt, 2015. "Trade in Central and Eastern European Countries Ten Years after Their EU Accession – Is There Convergence?," Society and Economy, Akadémiai Kiadó, Hungary, vol. 37(4), pages 443-460, December.
    5. Bennett, Colin J., 1991. "What Is Policy Convergence and What Causes It?," British Journal of Political Science, Cambridge University Press, vol. 21(02), pages 215-233, April.
    6. Michele Caputo & Francesco Forte, 2015. "Difficult Convergence among the Five Main European Union Countries and the Crisis of the Euro Area," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 415-430, December.
    7. Hugh Rockoff, 1999. "How Long Did It Take the United States to Become an Optimal Currency Area?," Departmental Working Papers 199910, Rutgers University, Department of Economics.
    8. Mihály Borsi & Norbert Metiu, 2015. "The evolution of economic convergence in the European Union," Empirical Economics, Springer, vol. 48(2), pages 657-681, March.
    9. Andrew T. Young & Matthew J. Higgins & Daniel Levy, 2008. "Sigma Convergence versus Beta Convergence: Evidence from U.S. County-Level Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 1083-1093, August.
    10. Isabell Koske & Isabelle Wanner & Rosamaria Bitetti & Omar Barbiero, 2015. "The 2013 update of the OECD's database on product market regulation: Policy insights for OECD and non-OECD countries," OECD Economics Department Working Papers 1200, OECD Publishing.
    11. Akhtar Akhtar Hossain, 2000. "Convergence of Per Capita Output Levels Across Regions of Bangladesh, 1982-97," IMF Working Papers 00/121, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    euro; convergence; cluster analysis; QCA;

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • I - Health, Education, and Welfare
    • J - Labor and Demographic Economics
    • O - Economic Development, Innovation, Technological Change, and Growth
    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:4:y:2016:i:3:p:16-:d:75992. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (XML Conversion Team). General contact details of provider: http://www.mdpi.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.