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Real convergence in the euro area: a long-term perspective

Author

Listed:
  • Diaz del Hoyo, Juan Luis
  • Dorrucci, Ettore
  • Heinz, Frigyes Ferdinand
  • Muzikarova, Sona

Abstract

In the euro area, there is mixed evidence that the GDP per capita of lower-income economies has been catching up with that of higher-income economies since the start of monetary union. The significant real convergence performance of some of the most recent members contrasts with that of the economies of southern Europe, which have not met expectations. However, attributing all the blame for this outcome to the introduction of the single currency simply misses the point. By taking a “long view” and reviewing the evidence since the 1960s, this paper shows that certain member countries began to face a “non-convergence trap” long before the euro years. We also provide stylised facts on: (i) the central role of total factor productivity in driving real convergence in the euro area over time, alongside other factors; and (ii) the crucial interaction of real convergence with “Maastricht convergence” and institutional quality, the other two key components of sustainable economic convergence. We conclude that it is critical that the euro area countries facing convergence challenges enhance the resilience of their economic structures by improving the relevant institutions and governance. JEL Classification: E01, F15, J11, O11, O43, O47, O52, O57

Suggested Citation

  • Diaz del Hoyo, Juan Luis & Dorrucci, Ettore & Heinz, Frigyes Ferdinand & Muzikarova, Sona, 2017. "Real convergence in the euro area: a long-term perspective," Occasional Paper Series 203, European Central Bank.
  • Handle: RePEc:ecb:ecbops:2017203
    Note: 427381
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op203.en.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Robert Anderton & Barbara Jarmulska & Benedetta Di Lupidio, 2018. "Product market regulation, business churning and productivity: Evidence from the European Union countries," Discussion Papers 2018-12, University of Nottingham, GEP.
    2. Mariarosaria Comunale & Francesco Paolo Mongelli, 2019. "Euro Area Growth and European Institutional Reforms," Bank of Lithuania Occasional Paper Series 24, Bank of Lithuania.
    3. repec:onb:oenbmp:y:2018:i:q2/18:b:5 is not listed on IDEAS
    4. repec:onb:oenbfi:y:2018:i:q3-18:b:4 is not listed on IDEAS

    More about this item

    Keywords

    Five Presidents’ Report; GDP per capita; institutional quality; labour productivity; Maastricht convergence criteria; nominal convergence; real convergence; Reflection Paper on the Deepening of EMU; sustainable economic convergence; total factor productivity;

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F15 - International Economics - - Trade - - - Economic Integration
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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