Economic Convergence in Europe: Arrested Development?

Economic convergence is at the heart of European Union integration, and convergence policy is one of the most distinctive policies of the EU. The importance of convergence has not diminished over time, and it is especially relevant in light of the economic crisis that has exacted a heavy toll on EU countries and created scepticism about the merits of EU policies. We look at how economic convergence evolved across EU regions during the crisis and assess the role played by conevrgence funds, provided to disadvantaged areas with the aim of facilitating their convergence to average EU income levels. We ran an absolute and a conditional convergence analysis, using regional data on per capita GDP in purchasing power standard. We find that convergence continued during the crisis for the EU as a whole, although at a slower pace, but for regions in EU14, and especially in the euro area, convergence appears to have stopped during the crisis, or even switched to a divergence path. We then look at the role played by convergence funds during the crisis. We exploit features in the funds’ eligibility rules in order to construct a quasi-experimental framework, based on comparable treatment and control groups of regions. We find that regional policy played an important role in limiting the effects of the crisis at the region level, by providing an important anchor for convergence in those regions that benefitted from the funds. This is a positive message at a time the legitimacy of EU economic policies is increasingly questioned.