Neoclassical and technological catching-up as the channels of the real convergence process in the European Union

Abstract

Purpose: The purpose of the paper is to investigate the β-convergence process between European Union member states in the period 2000-2014 and identify channels of that process. The paper attempts to illustrate if the investigated group of countries experienced convergence because of capital accumulation, technological catching-up or via both mechanisms. Design/methodology/approach: The framework used to test the relative strength of neoclassical and technological catching-up as convergence driving forces combines the neoclassical and endogenous representations of the economic growth process. The tests are conducted with the use of cross- sectional as well as panel data analysis, including the proper methods of estimation. Findings: The paper provides evidence for the presence of the β-convergence process among European Union countries in the period 2000-2014. The obtained results confirmed that in the analysed period, both channels of convergence (neoclassical and technological) occurred in the group of 27 EU member states. The technological mechanism seemed to be more important than the neoclassical one, especially between the “new” EU countries. In the group of “old” EU members no evidence of technological channel convergence was found. The preliminary survey on the existence of productivity convergence in the analysed groups confirmed its existence in the EU-27 and EU-12 group. Results for the EU-15 group were ambiguous. Research limitations/implications: As the results obtained for the EU-15 group were slightly different depending on the research method used, in the future, it would be advisable to carry out an additional study using an alternative research method. Moreover, further research on these issues should be explored towards much more accurate analysis of the productivity convergence and its impact on the real convergence process in the analysed groups of countries. Originality/value: The paper is an important step, giving direction to studies on determinants of the real convergence process in the EU. According to the obtained results, technological channel, not capital accumulation, is the driving force of the converge process in the European Union. It might be an important signal for the future convergence policy pursued at the national and European level. The policy concentrated on the dynamics of capital seems not to be effective enough to increase the speed of the convergence process between European Union member states in the future.