Convergence in the Euro Zone: Progress Towards the Goal?

18 Pages Posted: 7 Aug 2019

See all articles by William Miles

William Miles

Wichita State University - W. Frank Barton School of Business

Date Written: August 4, 2019

Abstract

Convergence in per-capita income across member countries is a stated goal of the European Union. This goal applies, of course, to all euro zone nations. The impact of a common currency on income convergence is both theoretically and empirically ambiguous, however. Previous studies on European convergence have suffered from methodological problems. In this study, we utilize the pair-wise approach of Pesaran. We use, among other tests, the Lee-Strazicich technique which allows for endogenous breaks. This will allow both for greater power, as well as shedding kight in economic changes-such as the advent of the euro, which may have promoted or hindered convergence. Results indicate little evidence of convergence within the euro zone. Moreover, convergence is more often found between euro and non-euro countries than within the euro itself, suggesting the common currency had at best a neutral, or even negative impact on income convergence.

Suggested Citation

Miles, William, Convergence in the Euro Zone: Progress Towards the Goal? (August 4, 2019). Available at SSRN: https://ssrn.com/abstract=3432056 or http://dx.doi.org/10.2139/ssrn.3432056

William Miles (Contact Author)

Wichita State University - W. Frank Barton School of Business ( email )

1845 N. Fairmount
Wichita, KS 67260
United States

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