Real convergence in EU-15 : a comparative analysis of North versus South Europe

Abstract

Purpose: The paper looks at the issue of absolute and conditional income convergence in the EU-15 States, focusing upon the growth incidence of certain fundamental economic variables, along with corruption and bureaucracy. Design/Methodology/Approach: Applying advanced panel data techniques, dating from 1995 up to 2012, we focus on two discrete European State groups. The first group consists of the Southern EU countries (i.e. Greece Belgium, Italy, France, Spain and Portugal) and, the second group of the Northern EU countries (i.e. Austria, Denmark, Finland, Germany, Ireland, Netherlands, Sweden, UK). Findings: The results demonstrate that investment share, human capital and country openness appear as robust growth drivers; whereas, inflation and government consumption hamper growth. However, corruption and bureaucracy seem to affect differently growth of the two groups of the European States. Practical Implications: Certain policy implications and obligations accrue to the Southern European countries vs. the Northern European ones, with respect to the effects and consequences of specific fundamental economic variables, along with corruption and bureaucracy, towards the absolute and conditional income convergence in the EU-15. Originality/Value: Macroeconomic policies that affect economic growth, directly through their effect on physical and human capital accumulation and macroeconomic stability, reflected in low and stable rates of inflation and government consumption, would indeed increase growth in EU. Taking advantage of the European integration, in terms of real convergence, institutions seem also quite essential ingredients.