The role of political institutions in the Eurozone's economic convergence process

Abstract

This paper investigates the nexus between per capita income convergence and political institutions within the Eurozone. Employing data spanning the years 2002–2019, the research initially identifies multiple convergence clusters and subsequently examines the relationship between the creation of these clusters and different aspects of political institutions. The findings reveal that there are multiple steady states in the Eurozone, and their formation is notably influenced by political institutions alongside other conventional economic determinants derived from the Solow model. Furthermore, the study underscores that improvements in regulatory quality, as well as in aspects such as democracy, government effectiveness, and corruption control, positively impact income convergence across all member countries. These findings carry significant policy implications.