Convergence as a heterogeneous process: what can be learnt about convergence in EMU from regional experiences?
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We augment the existing literature on regional convergence by uncovering a number of stylized facts on the heterogeneity of regional convergence processes in the absence of currency devaluation as a key policy instrument, and use them to highlight reform strategies that are most likely to be conducive to a successful catching-up of the periphery countries of EMU. We show that regional convergence processes in Europe were extremely heterogeneous, highly discontinuous and strongly concentrated during the last two decades. These stylized facts question the focus of the traditional literature on average (β-)convergence and suggest substantial nonlinearities in regional convergence processes that have yet to be understood in detail. Our results further suggest that growth strategies based on increasing human capital investments and innovation capacities are the most likely to be successful in triggering convergence of lagging regions in currency unions.
KeywordsRegional convergence Within-country development Extreme growth events Currency unions
JEL ClassificationO52 R11 R58
The authors thank two anonymous reviewers, Jesus Crespo Cuaresma, Peter Mayerhofer, Johanna Vogel, and the participants of the 1st ISW-Workshop on Applied Economics in Salzburg, the WWWforEurope Area 5 Meeting in Vienna, the NOeG Conference 2013 in Innsbruck, the Euroframe June 2013 conference in Warsaw, and the 53rd ERSA congress in Palermo for helpful comments. The usual disclaimer applies. The research leading to these results has received funding from the European Community’s 7th framework Programme FP7/2007–2013 under Grant agreement No. 290647.
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