Convergence and Growth: Portugal in the EU 1986-2010

The Portuguese convergence and growth experience after EU membership can be divided into two periods: 1986-1998, a convergence period during which growth in the Portuguese economy accelerated and Portugal grew faster than the EU15/14 average; and a stagnation/divergence period from 1999 onwards when its growth rate slowed down to figures lower than the reference group average. After EU accession, Portugal benefitted from better macroeconomic policies (associated with the process of nominal convergence on the way to the euro in 1990s), structural reforms, in the financial, labour and product markets, investments in physical and human capital, and improvements in other growth enhancing factors, which help to explain its good performance in the first sub-period. However, Portugal continues to present low values for most growth indicators when compared with their levels in the rest of the EU14, especially in what concerns educational attainment, technological infrastructures and investments in research and development and the dissemination of knowledge. The resurgence of macroeconomic instability associated with the increase in the government size, and the increased specialization pattern towards low productivity services sub-sectors also help to understand why Portugal stopped converging and is facing poor long-term growth prospects. The results from the estimation of a growth regression with quantile regressions techniques support this concern by revealing that for lower rates of growth an increase of the non-tradables sector and a loss of competitiveness are especially harmful for growth.