Determinants of real convergence in Central and Eastern Europe

Goran Petrevski, Gjorgji Gockov and Suzana Makreshanska-Mladenovska

MPRA Paper from University Library of Munich, Germany

Abstract: This paper deals with the process of convergence of the Central and Eastern European (CEE) countries towards the EU and attempts to identify the main driving factors behind this process. In these regards, we first provide an overview of the real convergence through an analysis of several economic variables – rate of approximation of real GDP per capita and price levels, trade integration, harmonization of the economic structure and achievements in the labor market. In addition, we offer a formal econometric evidence on the main determinants of the convergence process, based on a panel data for 10 CEE countries during 2000-2015 period, estimated with fixed effects. The results of our study imply that higher savings and investment ratio, higher labour productivity, more efficient labour markets (lower unemployment) and macroeconomic stability (lower inflation and lower budget deficits) are conducive to real convergence. However, quite surprisingly, we find that the close trade integration with the EU is associated with lower level of real convergence.

Keywords: Real convergence; Central and Eastern Europe; European Union; Panel data models; Fixed-effects estimator. (search for similar items in EconPapers)
JEL-codes: O11 O47 (search for similar items in EconPapers)
Date: 2016-09-14, Revised 2016-10-18
New Economics Papers: this item is included in nep-eec and nep-tra
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