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Convergence in GDP per capita in the euro area and the EU at the time of COVID-19

Author

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  • Mirko Licchetta
  • Gianni Mattozzi
Abstract
This paper investigates determinants of convergence in GDP per capita in the euro area and the EU between 1995 and 2021 including the impact of the COVID-19 crisis. It finds that the COVID-19 crisis temporarily slowed convergence but the estimated negative impact is significantly smaller than during the global financial crisis. Diverging effects emerged linked to the timing of the pandemic, the tightness of lockdown measures, and the importance of contact intensive sectors in the economy, like tourism. However, the easing of lockdown measures coupled with policy support (including the successful vaccination strategy) mitigated the risks of a pandemic-driven persistent divergence in growth. Regression results provide further evidence of convergence in the euro area and the EU over the period 1995-2021 and highlight the slowdown in the speed of convergence following the global financial crisis. It finds that this slowdown can, in most part, be attributed both to a contraction in investment rates in converging countries and to the limited catch-up in total factor productivity growth especially in euro area countries. Finally, the estimated model highlights the importance of traditional macroeconomic variables for income convergence and it confirms, in particular, the beneficial influence of investment in physical and human capital and trade in goods and services.

Suggested Citation

  • Mirko Licchetta & Gianni Mattozzi, 2022. "Convergence in GDP per capita in the euro area and the EU at the time of COVID-19," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 21(3), pages 7-18, November.
    • Handle: RePEc:euf:qreuro:0213-01
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    File URL: https://economy-finance.ec.europa.eu/publications/quarterly-report-euro-area-qrea-vol-21-no-3-2022_en
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    References listed on IDEAS

    as
    1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
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    More about this item

    Keywords

    Real convergence; income convergence; σ-convergence; β-convergence; COVID-19 crisis; global financial crisis;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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