Divergence Tendencies in the European Integration Process: A Danger for the Sustainability of the E(M)U?
Abstract
:1. Introduction
2. European Integration
2.1. Goals
2.2. Progress/Implementation of European Integration
(a) Deepening
- A free trade zone (reduction of trade restrictions between member states);
- A customs union (introduction of common customs provisions to third countries);
- A common market (abolishment of the restrictions in the movement of the production factors labor and capital, in addition to the free flow of goods and services) (This inevitably implied a certain degree of harmonization of economic policy forces. According to the classical foreign trade theory, free trade leads to an equalization of factor prices. In practice, however, this effect is only very limited occurred. Therefore, it is often considered necessary, to extend integration beyond goods markets);
- an economic union (harmonisation not only of the foreign trade and customs policy of the member countries, but also of their other economic policies, especially their regulatory policy);
- a monetary union (complete convertibility of currencies, no restrictions whatsoever on the movement of capital and an irrevocable fixing of exchange rates between the member countries, in the EMU case the introduction of a common currency).
(b) Widening (enlargement in different waves)
3. Concept and Empirical Development of Real and/or Institutional Convergence
3.1. Concept of Real Convergence
3.2. Empirical Experiences
3.2.1. Income Convergence
3.2.2. Nominal Convergence
3.2.3. Institutional Convergence
3.2.4. Summary of the Main Empirical Findings
3.3. Implication: Farewell to the Endogeneity Thesis?
- -
- A greater international trade among the euro area countries
- -
- Greater capital inflows (in particular, FDIs) and their effective use
- -
- Larger transfer payments (due to club solidarity)
- -
- A greater political stability through the transfer of monetary policy-making power to the European Central Bank (ECB).
4. Policy Implications
4.1. Various Options for the Further Development of the Union
4.1.1. A “Status-Quo” Policy (a Policy of “Business as Usual”)
4.1.2. Exit (Exclusion) of Individual Countries
4.1.3. A Multi-Speed Europe
- Group 1: the member states willing to reform (should be a homogeneous, already advanced group if possible)
- Group 2: the countries that need and want a time-out
- Group 3: Countries that want to stay in the club, but want to progress more slowly
4.2. Specific Political Implications with Respect to Institutional Divergence
(1) Unanimity rule
(2) Middle-Income Traps
(3) Emerging populism and autocracies in individual member states
(4) Trilemma problem in the EU
(5) Defence against attempts at division by non-EU countries
5. Conclusions
Author Contributions
Funding
Conflicts of Interest
References
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Author(s) | Year | Indicator | Time | EU/EA | Countries [Regions] | Method | Results |
---|---|---|---|---|---|---|---|
Panel A: Income convergence | |||||||
Sala-i-Martin | 1996 | Real p.c. income | 1950–1990 | EU | 8, 5 [90] | β-convergence; σ-convergence | Evidence of β-convergence; regional incomes converge at a speed of 2% p.a., which is about 5 p.p. lower than the speed predicted by neoclassical growth models using standard parametrization (i.e., a capital share of 0.3); σ-convergence within the largest five countries |
Crespo Cuaresma et al. | 2008 | Real p.c. income | 1960–1998 | EU | 15 | β-convergence; σ-convergence | Significant unconditional and conditional β-convergence across EU members; EU membership has an asymmetric, convergence-stimulating effect on long-term growth; the positive effect of EU membership is relatively higher for poorer economies |
Cavenaile and Dubois | 2011 | Real p.c. income | 1990–2007 | EU | 27 | β-convergence | Conditional β-convergence; convergence rates of new entrants from CEE and of the EU-15 significantly differ (pointing to the existence of different convergence groups) |
Kaitila | 2014 | Real p.c. income | 1999–2012; 1960–2012 (for EU-15) | EU | 15, 27, 33 | σ-convergence | EU-15: σ-convergence (1960–1973), stagnation (1973–1986), σ-convergence (1986–2001), stagnation (2001–2007), σ-divergence (since 2008) EU-27: slow σ-convergence (1993–2000), rapid σ-convergence (2000–2008), stagnation (since 2008) EU-33: rapid σ-convergence (2000–2008), stagnation (since 2008) |
auf dem Brinke et al. | 2015 | Real p.c. income | 1970–2014 | EA | 11 | σ-convergence | EA-11: stagnation (1970–1985), σ-convergence (1986–1999), σ-divergence (2000–2014) |
Diaz del Hojo et al. | 2017 | Real p.c. income | 1999–2016; 1960–2016 (for σ-conv) | EA; EU | 12; 28 | β-convergence; σ-convergence | EU-12: some β-convergence until GFC, divergence since 2008; stronger convergence in most recent EU members EU-12/EU-15: alternating periods of σ-convergence and stagnation between 1960–2008; σ-divergence since 2008 |
Franks et al. | 2018 | Real p.c. income | 1960–2015 | EA; EU | 12, 19; 28 | β-convergence; σ-convergence | EA-12: strong β- and σ-convergence (1960–1998), slow convergence (after 1992), divergence (1999–2015) EU-19: β-convergence (1990–1998, 1999–2015), but slower since GFC (2008–2015) EU-28: β-convergence (1993–2015), but lower than for EA-19 |
Micallef | 2020 | Real p.c. income, employment | 1995–2018; 1995–2010, 2010–2018 | EU | 15, 28, NMS-12 | β-convergence; σ-convergence | EU-28: β-convergence for the entire period and sub-periods, driven by convergence of the NMS countries EU-15: β-divergence, especially after the GFC EU-28: σ-convergence since around 2000 EU-15: σ-divergence, especially after the GFC |
Kutan and Yigit | 2004 | Industrial production | 1993–2000 | EU | 10 | Panel unit root tests | Evidence of real convergence for all transition countries with the exception of the (then) laggard EU accession countries LTV, ROM, SVK, LIT, BUL |
Kutan and Yigit | 2005 | Industrial production | 1993–2003 | EU | 12 | Panel unit root tests | Strong evidence of real convergence for the NMS (with DEU and GRC) |
Corrado et al. | 2005 | Real p.c. income | 1975–1999 | EU | 15 | time series analysis | No overall convergence (in four different sectors; two sub-periods, 1975–1993 and 1981–1999); geographical location and socio-demographic characteristics are correlated with the formation of convergence clusters; regional policy intervention plays a minor role; relevance of the factors decreases for the 1981–1999 period |
Brada et al. | 2005 | Industrial output | 1980–2000 | EU | 11 | rolling cointegration | (Former) EU candidate countries (CZE, EST, HUN, POL, SVN) do not exhibit very strong cointegration of real output with EU core countries |
Cunado and de Gracia | 2006 | Real p.c. income | 1950–2003 | EU | 6 (CEEC + DEU) | time series analysis | No convergence for the whole period; when allowing for structural breaks, there is evidence for a catching up process during the 1990s–2003 period for POL, CZE, HUN towards DEU (and only for POL towards the US); 1950-late 1960s/early 1970s: divergence, slowing down since 1973 |
Canova | 2004 | Real p.c. income | 1980–1992 | EU | 13 [144] | predictive density approach | 4 convergence clubs (North vs. South, rich vs. poor) |
Carvalho and Harvey | 2005 | Real p.c. income | 1950–1997 | EA | 11 | multivariate structural time series model | 2 convergence clubs, a high income group (5 core economies (DEU, FRA, BEL, NLD, ITA) + AUT, FIN) and low-income group (PRT, ESP, GRC); IRE diverging |
Fischer and Stirböck | 2006 | Real p.c. income | 1995–2000 | EU | 25 [256] | spatial econometric analysis | 2 spatial clubs (core vs. periphery, most EU-15 regions are in the same club) |
Ramajo et al. | 2008 | Real p.c. income | 1981–1996 | EU | 12 [163] | spatial econometric analysis | 2 spatial convergence clubs (Cohesion fund vs. Non-Cohesion fund); regions in the EU cohesion-fund countries (IRE, GRC, PRT, ESP) converge faster than the rest of the regions (5.3% versus 3.3%) |
Apergis et al. | 2010 | Real p.c. income | 1980–2004 | EU | 14 | Club convergence (Phillips and Sul) | 1 club for the period 1980-2004 (Greece is diverging); 2 clubs for the period 1990–2004 (GIPS + Germany vs. the rest) |
Fritsche and Kuzin | 2011 | real p.c. income | 1960–2006 | EU | 15 | Club convergence (Phillips and Sul) | 3 convergence clubs (no clear pattern) |
Bartkowska and Riedl | 2012 | Real p.c. income | 1990–2002 | EU | 17 [206] | Club convergence (Phillips and Sul) | 6 regional convergence clubs (core vs. periphery, North vs. South); initial levels of human capital and p.c. income are decisive for club membership |
Monfort et al. | 2013 | Real per worker income | 1980–2009 | EU | 10, 14, 24 | Club convergence (Phillips and Sul) | EU-14: 2 clubs for the period 1980–2009 (core vs. periphery); EU-24: 2 clubs for the period 1990–2009 (West vs. East); EU-10: 2 clubs for the period 1990–2009 (Eurozone vs. rest) |
Borsi and Metui | 2015 | Real p.c. income | 1970–2010 | EU | 21, 27 | Club convergence (Phillips and Sul) | EU-21: 4 clubs for the period 1970–2010 (West vs. East); 4 clubs for the period 1995–2010 (Northwest vs. Southeast); EU-27: 4 clubs for the period 1995–2010 (Northwest vs. Southeast) |
von Lyncker and Thoennessen | 2017 | Real p.c. income | 1980–2011 | EU | 15 [194] | Club convergence (Phillips and Sul) | 4 clubs (North vs. South), high-income cluster for capital cities; the initial labour force participation rate, human capital, and income are decisive for club formation |
Glawe and Wagner | 2021 | Real p.c. income | 2002–2018 | EU | 27 | Club convergence (Phillips and Sul) | 4 clubs (Northwest vs. Southeast) |
Panel B: Nominal convergence | |||||||
Hein and Truger | 2005 | Interest rates, inflation, debt-to-GDP ratio | 1981–2001 | EU | 12 | σ -convergence | Nominal convergence (stagnating tendency starting from 1999) |
Toader and Gidiu | 2012 | Inflation, interest rates, budgetary deficits/surplus, public debt | 1995–2011 | EA | 12, 17 | σ -convergence | EA-17: σ -convergence in inflation; EA-12/17: σ -convergence in interest rates (until 1999), increasing dispersion after the GFC; no convergence in fiscal indicators |
Estrada et al. | 2013 | Inflation, relative price level, unemployment, current account | 1985–2012 | EA | 17 | β-convergence; σ-convergence | β- and σ-convergence in inflation (especially prior to 1999), the relative price level, and unemployment (divergence tendency for the latter two indicators after the GFC); increasing dispersion of the current account before GFC and stabilizing trend thereafter |
Franks et al. | 2018 | Inflation, interest rate, price level | 1980–2015 | EA; EU | 12, 19; 28 | β-convergence; σ-convergence | EA-12: σ-convergence in inflation prior to euro adoption but stagnation thereafter; no σ-convergence in price levels; nominal interest rate β-convergence only prior to the GFC; EA-19/EU-27: price level convergence (until GFC) |
Brada et al. | 2005 | CPI, monetary base, M2 | 1980–2000 | EU | 11 | rolling cointegration | Countries that joined the EU previously (AUS, PRT, ESP, SWE) exhibit time-varying cointegration with the core countries (DEU, FRA); cointegration for the transition economies (CZE, EST, HUN, POL, SVN) was comparable for M2 and CPI, but not for monetary policy; benefits of EMU accession are yet limited |
Kutan and Yigit | 2004 | Price (PPI, CPI), M1, nominal/real interest rates | 1993–2000 | EU | 10 | panel unit root tests | Weak CPI, PPI, M1 growth, and real interest rate spread convergence for most NMS; CEFTA-5: only weak nominal interest spread convergence; CEFTA-5 + ROM: CPI, PPI convergence, no M1 convergence; front-runners (CEFTA-5 –SVK + EST): (nominal and real) interest rate spread convergence, no CPI, PPI, and M1 convergence; laggard EU accession candidate countries (LTV, ROM, SVK, LIT, BLG): CPI, PPI, M1 convergence; Baltic countries: CPI, PPI, interest rate spread convergence, no M1 convergence |
Kutan and Yigit | 2005 | Price (PPI, CPI), M1, nominal/real interest rates | 1993–2003 | EU | 12 | panel unit root tests | Baltic states have the strongest monetary policy and price-level convergence, CEEC group exhibits only weak nominal convergence |
Panel C: Institutional convergence | |||||||
Schönfelder and Wagner | 2016 | WGIs | 1996–2012 | EU | 33 | β-convergence; interaction with E(M)U accession status variable | Positive effect of prospective EU membership on institutional development; once countries have become a E(M)U member, their institutional development loses momentum; EMU members underperform regarding the control of corruption |
Schönfelder and Wagner | 2019 | WGIs, product market regulation, doing business distance to frontier | 1996–2012 | EU | 12, 17, 27, 33 | β-convergence; σ-convergence | Institutional β-convergence within the EU and its aspirants, mainly driven by the NMS and acceding and (potential) candidate countries; within euro area convergence regarding product market and business regulation but not regarding governance; only for 33 country sample σ-convergence |
Beyaert et al. | 2019 | Six institutional indicators | 1998–2018 | EA | 19 | panel unit root tests; distribution dynamics analysis | No convergence in the Eurozone as a whole and also not within smaller sub-groups; Eastern Eurozone members even suffered backsliding with respect to “investment profile” |
Pérez-Moreno et al. | 2020 | Public and private institutions of the GCI | 2008–2014; 2014–2017 | EA | 19 | unified framework of Dhongde and Silber (2016) | σ-divergence over the period 2008–2014; non-significant σ-convergence over the period 2014–2017; net effect of σ-divergence across the full period; increasing gap between the Eurozone core countries and the periphery countries (esp. 2014–2017) |
Glawe and Wagner | 2021 | WGIs | 2004–2018 | EU | 27 | Club convergence (Phillips and Sul) | Average institutional quality: 4 clubs; government effectiveness: 3 clubs; regulatory quality: 4 clubs; control of corruption: 5 clubs; all clubs reveal a northwest-southeast divide; the initial levels of human capital and institutional quality are decisive for club membership; euro area membership is important for government effectiveness club formation |
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Glawe, L.; Wagner, H. Divergence Tendencies in the European Integration Process: A Danger for the Sustainability of the E(M)U? J. Risk Financial Manag. 2021, 14, 104. https://doi.org/10.3390/jrfm14030104
Glawe L, Wagner H. Divergence Tendencies in the European Integration Process: A Danger for the Sustainability of the E(M)U? Journal of Risk and Financial Management. 2021; 14(3):104. https://doi.org/10.3390/jrfm14030104
Chicago/Turabian StyleGlawe, Linda, and Helmut Wagner. 2021. "Divergence Tendencies in the European Integration Process: A Danger for the Sustainability of the E(M)U?" Journal of Risk and Financial Management 14, no. 3: 104. https://doi.org/10.3390/jrfm14030104