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

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  • Glawe, Linda
  • Wagner, Helmut

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.

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  • Glawe, Linda & Wagner, Helmut, 2021. "Convergence, divergence, or multiple steady states? New evidence on the institutional development within the European Union," Journal of Comparative Economics, Elsevier, vol. 49(3), pages 860-884.
    • Handle: RePEc:eee:jcecon:v:49:y:2021:i:3:p:860-884
    DOI: 10.1016/j.jce.2021.01.006
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    More about this item

    Keywords

    Institutional quality; Economic development; European integration process; Club convergence; Ordered probit model;
    All these keywords.

    JEL classification:

    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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