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Real convergence of EU-2 8

Real convergence of EU-2 8. Petar Sopek. YOUNG ECONOMISTS ’ SEMINAR to 19 th Dubrovnik Economic Conference Dubrovnik, 12 June 2013. Objectives / Content. Define real convergence How to assess real convergence? Catch-up rate β-convergence σ-convergence

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Real convergence of EU-2 8

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  1. Real convergence of EU-28 Petar Sopek YOUNGECONOMISTS’ SEMINAR to19th Dubrovnik Economic Conference Dubrovnik, 12 June 2013

  2. Objectives / Content • Define real convergence • How to assess real convergence? • Catch-up rate • β-convergence • σ-convergence • Measuring real convergence of the EU members and Croatia • in the period from 1995 to 2011, • future expected real convergence up to 2017. • Conclusions • Croatia inthe EU

  3. Real convergence definition • The process of approaching the level of GDP per capita and comparative price level of the given country to levels that correspond to the long-term steady state (Kulhánek, 2012). • Real convergence occurs if (Veiga, 1999): 1. poorer countries or regions are growing faster than rich ones; 2. the dispersion of GDP per capita is decreasing over time; 3. country or regional rankings of GDP per capita are not persistent; 4. the regional distribution of GDP per capita is evolving towards an increased concentration at the center (at the EU average).

  4. Why is it important? • There are significant differences in the standard among EU Member States.

  5. What are the trends? • Differences between EU-12+Croatia and EU-15 are diminishing over time. • Indication of possible long-term convergence?

  6. Real convergence measurementCatch-up rate • Indicator which measures the pace of catching-up more developed countries. • Not identical concept as real convergence; catching up is the distance to be travelled, while convergences expresses measure of progress. • Catch-up rate is defined as: - GDP per capita measured by the purchasing power standard of a country in time period , - average of EU-15 Member States, - difference between time periods and .

  7. Real convergence measurementβ-convergence • Occurs in case when less developed countries grow faster than the more developed ones, i.e. there is negative relationship between initial income level and the growth rate. • Cross-section β-convergence is calculated using ordinary least squares regression based on average annual GDP growth rates versus GDP levels from the beginning of the period: • Panel analysis regression is made on annual GDP growth rates with regard to GDP levels from the preceding year:

  8. Real convergence measurementσ-convergence • Takes place when the dispersion of real per capita income declines over time. • The dispersion of income levels can be measured by standard deviation, variation or the coefficient of variation of GDP per capita levels between economies. All these indices yield similar results because the direction of change matters when analyzing σ-convergence, not the absolute value of the indices. • Coefficient of variation: - standard deviation, - mathematical expectation, i.e. mean value of a certain measure

  9. Real convergence resultsCatch-up rate • Decreasing catch-up rate of NMS before the EU membership. • The utilization of various pre-accession aids and arrangements? • Croatia followed EU-12 relatively well up to 2004, after 2004 slower trend of catching-up.

  10. Real convergence resultsAnnual GDP per capita change • Decreasing trends of differences of per capita GDP compared to the EU-15 average. • The impact of crisis on GDP per capita difference, but Croatia recovers slowly than EU-12.

  11. Real convergence resultsCross-section β-convergence • In all three observed periods from 1995 to 2017 β-convergence was realized in all of observed groups of countries. • Disparity between NMS and Croatia decreased at a faster pace than the one at the level of the whole EU.

  12. Real convergenceresultsPanel data β-convergence • The same general conclusion like in case of cross-section analysis, i.e. β-convergence is confirmed. • Unlike cross-section analysis, exclusion of Luxembourg does not impact β regression coefficients significantly.

  13. Real convergence resultsσ-convergence • Dispersion of GDP pc in EU-12+Croatia mainly decreases, while in case of EU-15 the dispersion records an increasing trend. • Considerable decrease of dispersion of GDP per capita in 26 EU Member States (EU-27 w/o Luxembourg) and Croatia.

  14. Conclusions • All new Member States (EU-12) in 2011 were below the EU-27 average according to labour productivity and GDP per capita measured by purchasing power standard. • In all three observed periods (1995-2004, 2004-2011 and 2011-2017) difference in the level of economic development among the new Member States and Croatia on one side and the old Member States on the other are decreasing, confirming the existence of the real convergence. • Impact of still ongoing global economic crisis leads to deceleration of real convergence, primarily due to slow recovery of less developed Member States.

  15. Croatia in the EU • From July 2013 there will be many possibilities for Croatia to utilize significant resources from a number of funds for cohesion, employment and economic growth. • It is necessary to plan, develop and continuously improve the macroeconomic, financial and administrative absorption capacities, as well as institutional capabilities, and design and prepare adequate and timely project activities. • Financial benefits of EU membership could be manifested also in the opening of the European market for Croatian producers, developing competitiveness, improving the efficiency of public administration etc. • Following period provides an interesting perspective for Croatia, but opens also a number of issues that have not been tackled in this paper.

  16. Thank you for yourattention! Contact: Petar Sopek psopek@gmail.com

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