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Unconditional Convergence in Currency Unions: An analysis of European regions from 1991 to 2009

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  • Matthias Firgo
  • Peter Huber

Abstract

We analyze unconditional within-country convergence from 1991 to 2009 in 21 European countries. Unlike most previous studies we focus on the heterogeneity of convergence. We find that convergence processes in currency unions are extremely heterogenous, highly discontinuous and strongly concentrated: Only around half of the regions starting with below national average GDP per capita levels in 1991 experienced catching-up over the period analyzed and two thirds of the regions starting with above average GDP per capita converged towards the national average. The average duration of the longest spell of unbroken above average growth for poor converging regions lasted for five years, while the longest below average growth rate spell for these regions lasted for three years. About two thirds of the growth rate differential of the average catching-up region to the national average over the period can be attributed to the year with the strongest growth. In addition, human capital and innovation are the main predictors for the propensity of a region to catch-up. These stylized facts therefore question the focus of the traditional literature on average (beta-)convergence and suggest substantial non-linearities in regional convergence processes and imply that growth strategies based on increasing human capital investments and innovation capacities are the most likely to be successful in triggering convergence in monetary unions.

Suggested Citation

  • Matthias Firgo & Peter Huber, 2013. "Unconditional Convergence in Currency Unions: An analysis of European regions from 1991 to 2009," WWWforEurope Policy Paper series 4, WWWforEurope.
  • Handle: RePEc:feu:wfeppr:y:2013:m:6:d:0:i:4
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Karl Aiginger & Matthias Firgo, 2017. "Regional competitiveness: connecting an old concept with new goals," Chapters,in: Handbook of Regions and Competitiveness, chapter 7, pages 155-191 Edward Elgar Publishing.
    2. Gunther Tichy, 2015. "Protecting social inclusion and mobility in a low growth scenario," WWWforEurope Working Papers series 100, WWWforEurope.
    3. repec:wfo:wstudy:58342 is not listed on IDEAS
    4. Matthias Firgo & Peter Mayerhofer, 2015. "Wissens-Spillovers und regionale Entwicklung - welche strukturpolitische Ausrichtung optimiert des Wachstum?," Working Paper Reihe der AK Wien - Materialien zu Wirtschaft und Gesellschaft 144, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik.
    5. Mihaela-Nona Chilian & Marioara Iordan & Carmen Beatrice Pauna, 2016. "Real and structural convergence in the Romanian counties in the pre-accession and post-accession periods," ERSA conference papers ersa16p320, European Regional Science Association.
    6. repec:wfo:wstudy:58501 is not listed on IDEAS
    7. Karl Aiginger & Kurt Kratena & Margit Schratzenstaller & Teresa Weiss, 2014. "Moving towards a new growth model," WWWforEurope Deliverables series 3, WWWforEurope.
    8. repec:wfo:wstudy:60625 is not listed on IDEAS
    9. repec:wfo:wstudy:47247 is not listed on IDEAS

    More about this item

    Keywords

    unconditional regional convergence; within-country development; extreme growth events; currency unions;

    JEL classification:

    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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