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Journal of Economic Integration 2021 March;36(1) :125-161.
DOI: https://doi.org/10.11130/jei.2021.36.1.125
Club Convergence in EU Countries: A Sectoral Perspective

Eleonora CavallaroIlaria Villani 

Sapienza University of Rome, Italy
Corresponding Author: Eleonora Cavallaro ,Email: eleonora.cavallaro@uniroma1.it
Copyright ©2021 Journal of Economic Integration
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.

JEL Classification
C33: Models with Panel Data; Longitudinal Data; Spatial Time Series
C38: Classification Methods; Cluster Analysis; Factor Models
O47: Measurement of Economic Growth; Aggregate Productivity; Cross Country Output Convergence
F6: Globalization
Keywords: Club convergence | Dynamic factor model | Economic integration | Vertical specialization | Global value chain
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