Convergence And Divergence In European Union: Evidence For Beta Convergence Among New Eu Member States

Convergence may be considered a central issue of the current economic literature, and not only, concentrating upon income distribution within different economies, but also focusing on different aspects of polarity and inequality that characterize especially the emerging economies. Testing convergence within economies may serve as a useful instrument for the validation of the economic growth models. While convergence was considered a defining element of the neoclassical growth models, the majority of the new endogenous growth models argue in favour of divergence across different economies. Testing convergence among European Union is even more challenging due to the high degree of heterogeneity that characterizes these economies. The recent accessions with ten new countries in 2004 and with another two in 2007 were considered only the first step towards assuring a sustainable convergence and finally adopting a common currency-the euro. A series of empirical studies concentrated upon testing convergence among EU, using as benchmark the real convergence quantified by the level of GDP/capita as an indicator for the living standards of every economy. The most popular approach rely on Beta and Sigma convergence, the first one being and indicator of the GDP/capita dispersion between different economies, and the later one being an estimator of the reverse relationship between GDP/capita and its initial level. The main purpose of this paper is to test Beta converge among the new EU member states, in order to obtained more information about the fact whether the poor countries are trying to catch-up with the more developed one. Also Beta convergence indicator embodies useful information about conditional and un-conditional convergence, two leading hypothesis within the neoclassical and endogenous growth models. For Beta convergence hypothesis to be valid it should be taken into consideration a "catch-up" mechanism over a longer period of time and a set of elements that are inter-correlated with the main objective of reducing disparities among economies. However we also have to take into consideration the fact that these elements may be influenced by temporary shocks that may have a decisive impact upon their short time performance.