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Convergence crisis: economic crisis and convergence in the European Union

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  • Péter Halmai
  • Viktória Vásáry

Abstract

The success of the integration process of the new EU Member States is reflected by the convergence performance. Sustainable convergence assumes that potential growth rates of the less developed countries continuously exceed the dynamics of the potential output of the developed countries. However, the financial and economic crisis of 2008 has resulted in a fundamentally new situation as regards these issues. This paper considers real convergence, catch-up processes and in terms of these the main economic growth trends. The study focuses mainly on the potential growth trends. The recession has, however, affected the individual countries to different degrees. The study classified the Member States into four groups based on the initial circumstances and the vulnerability originating from them; these are ‘Developed’ countries and ‘Convergence’ countries, three groups of the latter are ‘Mediterranean’ countries, ‘Catch-up’ countries and ‘Vulnerable’ countries. Potential growth and the contribution of the individual growth factors might follow significantly different paths in these country groups. The convergence countries might face especially great challenges. Potential growth rate of the ‘Convergence’ countries—according to simulations—is expected to recover less in the mid-term, than that of the ‘Developed’ countries, i.e. convergence slows down, it might come to a halt or even divergence might occur in certain countries. It might result in a ‘Convergence Crisis’ particularly in certain ‘Mediterranean’ and ‘Vulnerable’ new Member States. Also, longer term simulations indicate that the European convergence processes might slow down and stop in certain countries. These trends may have significant effects on economic policies facilitating potential growth. We apply extensive quantitative analysis, production function and growth accounting approaches in the study. Copyright Springer-Verlag 2012

Suggested Citation

  • Péter Halmai & Viktória Vásáry, 2012. "Convergence crisis: economic crisis and convergence in the European Union," International Economics and Economic Policy, Springer, vol. 9(3), pages 297-322, September.
  • Handle: RePEc:kap:iecepo:v:9:y:2012:i:3:p:297-322
    DOI: 10.1007/s10368-012-0218-3
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    3. Fabio Mazzola & Pietro Pizzuto, 2020. "Great Recession and club convergence in Europe: A cross‐country, cross‐region panel analysis (2000–2015)," Growth and Change, Wiley Blackwell, vol. 51(2), pages 676-711, June.
    4. Mihaela Simionescu, 2014. "A Comparative Analysis Of Real And Predicted Inflation Convergence In Cee Countries During The Economic Crisis," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 6(2), pages 142-155, July.
    5. Mateusz Pipieñ & Sylwia Roszkowska, 2017. "The Heterogeneity of Convergence in Transition Countries," Lodz Economics Working Papers 7/2017, University of Lodz, Faculty of Economics and Sociology.
    6. Kovács, Olivér, 2021. "Integrációelmélet és makroökonómia Gondolatok Halmai Péter Mélyintegráció A Gazdasági és Monetáris Unió ökonómiája című kötete kapcsán [Integration and macroeconomics. Thoughts on Péter Halmai s Mé," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 564-579.
    7. Kaitila, Ville, 2013. "Convergence, income distribution, and the economic crisis in Europe," ETLA Working Papers 14, The Research Institute of the Finnish Economy.
    8. Farkas, Beáta, 2013. "Changing development prospects for the Central and Eastern European EU member states," MPRA Paper 48172, University Library of Munich, Germany.
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    More about this item

    Keywords

    European Union; Real convergence; Convergence crisis; Potential growth; Catch-up; F43; F47; F15; E60; O11; O47;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • F15 - International Economics - - Trade - - - Economic Integration
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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