Switching from convergence to divergence in the European Union: A case study

Abstract

EU member states do not get much from participating in a regional trade agreement and economic integration regime: beside the questionable effects on growth perspectives (€-area grew since 1960 with a gradually smaller rate than the world economy), there is a clear evidence for a profound, unpleasant, structural change regarding convergence. During the first two decades of the period we studied, the coefficient of variation of per capita (p.c.) GDP fell strongly and labour remuneration grew substantially relative to non-labour income. Yet, this picture changed after 1980! The previous trend of closing the gap among the countries reversed completely: in 2005, coefficient of variation grew back to the levels of 1960. At the same time, all previous gains of labour vanished: in the period 1980-2005 real wages lost about 35% against p.c. GDP. A persisting period of continuous divergence emerged after 1980, probably due to permanent, structural developments!cross-country convergence, domestic inequality.