Economic Convergence Criteria – Factor Analysis
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The main objective of this research note is to define new (comprehensive) convergence criteria using factor analysis. These criteria will be used in future research, for the expression of convergence or divergence processes in the European Union via a cluster-analysis-based method. This approach is based on the premise that if distances among clusters are shorter over time, countries in a specific cluster are converging. If distances are longer, countries are diverging.
In economic research, real convergence is generally expressed as β–convergence or σ–convergence (Barro and Sala-i-Martin, Journal of Political Economy, 1996; Young et al., Journal of Money, Credit and Banking, 2008; Dobrinsky and Havlik, The Vienna Institute for International Economic Studies, 2014). Besides the two dominating methods, researchers in this field use cluster analysis methods. A reference cluster analysis work is a paper by Artis and Zhang, (International Journal of Finance and Economics, 1997) who...