The EU Enlargement and Income Convergence: Central and Eastern European Countries vs. Western Balkan Countries

Abstract

Objective: This article analyses the stochastic convergence of income per capita between the Western Balkan (WB) and the Central and Eastern European (CEE) countries compared to developed EU countries (EU15). Research Design & Methods: Stochastic convergence implies that all shocks in country’s income relative to the average income of the group are only temporary. In order to test stochastic convergence, the tests of the unit root were used. The Augmented Dickey-Fuller (ADF) test is supplemented with the Zivot-Andrews (ZA) unit root test, which allows for the structural breaks in time series of income per capita. Findings: Results confirm the existence of stochastic convergence of income per capita toward the EU15 average in the cases of the Czech Republic, Slovakia, Poland, Slovenia, Estonia, Latvia and Romania. Income convergence is not found in the case of the Western Balkan countries. Implications & Recommendations: While income convergence toward the EU15 average level was found in the case of 7 CEE countries, it was not found in the case of any WB country. This could be a proof of the importance of further support to reforms in the Western Balkan countries. Contribution & Value Added: The scientific contribution of the article is reflected in the fact that the existing literature dealing with income convergence of the Western Balkan countries toward the income of the EU15 countries is still very limited in number, as is the number of studies that compare convergence of income per capita toward the EU15 between the Western Balkan and CEE countries.

Keywords

• income convergence
• transition economies
• European Union
• unit root tests