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The Role Of International Trade In Convergence Process

  • Davor Mikulic
  • Ivan Kovac
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    Over the past decades, the issue of convergence in the European Union has been the subject of a wide range of empirical research. The model most widely used for testing convergence hypotheses is beta-convergence analysis. Beta-convergence is defined as a negative relation between the initial income level and the income growth rate, meaning the less developed regions are expected to record higher growth rates. According to the absolute convergence hypothesis, all regions converge towards the same steady state equilibrium. On the other hand, conditional convergence model controls for other differences in cross-sectional units that could produce different steady-state. Other factors usually included in econometric modelling of convergence are demographic variables, labour market conditions, industrial structure, institutional factors and overall government policy. In this paper, the role of international trade in convergence process has also been investigated. The main hypothesis tested in this work is that openness and international trade significantly support process of convergence in EU. On the other hand process of convergence is not evident for Croatian's regions and role of international trade is less significant in explaining regional growth patterns. Besides descriptive statistics econometric modelling is used for confirmation of the hypothesis.

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    Article provided by Economic Laboratory for Transition Research (ELIT) in its journal Montenegrin Journal of Economics.

    Volume (Year): 8 (2012)
    Issue (Month): 4 ()
    Pages: 7-26

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    Handle: RePEc:mje:mjejnl:v:8:y:2012:i:4:p:7-26
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    1. Xavier Sala-i-Martin, 1994. "Regional cohesion: Evidence and theories of regional growth and convergence," Economics Working Papers 104, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Jan De Loecker, 2004. "Do Exports Generate Higher Productivity? Evidence from Slovenia," LICOS Discussion Papers 15104, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    3. Catherine Baumont & Cem Ertur & Julie Le Gallo, 2002. "The European Regional Convergence Process, 1980-1995: Do Spatial Regimes and Spatial Dependence Matter?," Econometrics 0207002, EconWPA.
    4. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
    5. Giuseppe Arbia & Gianfranco Piras, 2005. "Convergence in per-capita GDP across European regions using panel data models extended to spatial autocorrelation effects," ISAE Working Papers 51, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
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    7. Tiiu Paas & Friso Schlitte, 2006. "Regional Income Inequality and Convergence Processes in the EU-25," ERSA conference papers ersa06p229, European Regional Science Association.
    8. Ben-David, D., 1995. "Trade and Convergence Among Countries," Papers 35-95, Tel Aviv.
    9. Yigit, Taner M. & Kutan, Ali M., 2004. "European integration, productivity growth and real convergence," ZEI Working Papers B 08-2004, ZEI - Center for European Integration Studies, University of Bonn.
    10. Awokuse, Titus O., 2007. "Causality between exports, imports, and economic growth: Evidence from transition economies," Economics Letters, Elsevier, vol. 94(3), pages 389-395, March.
    11. Dan Ben-David & Michael B. Loewy, 1997. "Free Trade, Growth, and Convergence," NBER Working Papers 6095, National Bureau of Economic Research, Inc.
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