Club Convergence in EU Countries: A Sectoral Perspective

Eleonora Cavallaro () and Ilaria Villani ()
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Ilaria Villani: Sapienza University of Rome, Italy, Postal: Sapienza, Department of Economics and Law, Via del Castro Laurenziano, 9, I-00161, Rome, Italy

Journal of Economic Integration, 2021, vol. 36, issue 1, 125-161

Abstract: We employ Phillips and Sul’s (2007) nonlinear dynamic factor model to investigate whether economic integration within the EU has caused countries’ productive structures to become increasingly similar and sector-level productivity to converge over the period 1995-2018. This analysis provides several results. First, the EU countries do not converge to a unique path; instead, we observe clustered patterns for aggregate and sector-level productivity growth. Second, although successful integration in global production networks enabled most Central-Eastern European countries to catch up to other EU countries, asymmetries have increased following the recent financial crisis. Third, the heterogeneity in countries’ long-run productivity levels reflects differences in their vertical specialization; countries approaching the high-growth paths specialize in knowledge-intensive production, and the foreign value-added content of their exports is lower. Our analysis is relevant to the ongoing debate on the effects of internationalizing production, as it sheds light on countries’ growth prospects and indicates possible directions for policy actions.

Keywords: Club convergence; Dynamic factor model; Economic integration; Vertical specialization; Global value chain (search for similar items in EconPapers)
JEL-codes: C33 C38 F60 O47 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0822

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