INCOME CONVERGENCE BETWEEN SOUTHEAST EUROPE AND THE EUROPEAN UNION

Abstract

This paper investigates the average gross per capita income convergence of eight Southeast European economies towards the EU average. Our goal is to analyse which factors have driven that convergence in the SEE region and describe convergence paths in the 2000-2018 period, concerning two sub-periods, before and after the economic crisis. We use a combination of parametric and nonparametric methods and a fixed effects linear panel regression with robust standard errors. Results suggest that the EU integration process drove convergence, education level, investment (FDI, private domestic and public investments), and private sector lending, as well as by government expenditures. Economic crisis, unemployment, and inflation were the main factors which have influenced the divergence process. We also concluded that the post-transition growth model dominant in the SEE region, based on an FDI inflow, has not sufficient for income convergence in this region. Private domestic investments are a critical missing factor for faster income convergence.

Keywords

• gross income convergence
• southeast europe
• economic growth
• eu integration
• panel data analysis