Convergence of Productivity Levels among the EU Countries: Evidence from a Panel of Industries

Abstract

We investigate whether economic integration stimulates income convergence and whether changes in production, specialisation and trade patterns associated with the enlargement process foster economic growth and convergence among countries. We examine income convergence via endogenous growth model for countries in which the scale factor stemming from learning-by-doing is a prevailing feature. We illustrate a clear connection between externalities and trade among EU countries. Empirical evidence based on a panel of industries shows that learning from export and import related scale effect do significantly affect the convergence process. We find that there is a low speed of convergence across the EU manufacturing. This implies that the degree of cross-manufacturing productivity inequality disappears in the very long-run. This in turn implies that manufacturing sectors, which are predicted, to be more productive in the past, are the same sectors that are also productive today.