Convergence, divergence, or multiple steady states? New evidence on the institutional development within the European Union

Linda Glawe and Helmut Wagner

Journal of Comparative Economics, 2021, vol. 49, issue 3, 860-884

Abstract: Convergence in institutions and in per capita income across the European Union (EU) Member States are key goals of the European integrations process. Especially in the course of the various EU enlargement waves starting in 2004, it was intensively discussed whether institutional and structural homogeneity are necessary preconditions for real convergence and the smooth functioning of the EU or whether a (further) catching up in the institutional and economic development will endogenously occur after the EU accession. Our paper is dedicated to the analysis of these institutional dynamics within the EU. In particular, we analyze the formation of institutional convergence clusters using Phillips and Sul's (2007, 2009) log t-test over the period 2002 to 2018. Our results indicate the existence of multiple institutional clubs with various countries being stuck in a poor institutional trap. Moreover, we find that institutional convergence clubs are formed mainly on the basis of geographic region; in particular, we identify a northwest-southeast divide. When analyzing per capita income clubs, a rather similar picture emerges, suggesting that the underlying institutional clusters might drive the formation of income clubs. We also study the factors that determine institutional club membership by using an ordered probit model. Most importantly, we find that the initial levels of human capital and institutional quality are decisive for determining whether a country is on a high or low institutional growth path.

Keywords: Institutional quality; Economic development; European integration process; Club convergence; Ordered probit model (search for similar items in EconPapers)
JEL-codes: F55 O1 O11 O43 O52 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:49:y:2021:i:3:p:860-884

DOI: 10.1016/j.jce.2021.01.006

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