Real Income Convergence between Central Eastern and Western Europe: Past, Present, and Prospects

The paper presents an analysis of real income convergence between the 11 countries of Central Eastern Europe which have joined the European Union (EU11) and 15 countries of Western Europe (EU15) in the period 1993-2015. The evolution of the income gap between the two groups of countries in terms of GDP per capita at PPP reveals a clear-cut tendency towards income convergence over the analyzed period, confirmed also by the results of beta and sigma convergence tests. However, the catching-up process was not continuous, showing some breaks and divergence episodes. The most intensive convergence appeared in the years 2000-2007, just before and after the EU's major enlargement. This suggests that the increasing economic integration stimulated the convergence process. But the global economic crisis, along with financial perturbations in the euro area, have slowed down the convergence in most CEE countries, as reflected by changes in the income gap observed in the years 2007-2015. The paper also presents some projections of the convergence prospects, with three scenarios as to the future economic growth. The first two scenarios assume the continuation of past or current growth trends and the maintenance of positive growth rate differentials, indicating the probable length of the period needed by the individual CEE countries to attain the average GDP per capita level seen in Western Europe. The third scenario, based on a long-term economic forecast for the EU economies, warns that economic growth in the region may slow down due mainly to unfavorable demographic trends, with the resulting deceleration of the convergence process, up to its total halt or reversal into divergence. Proper social and economic policies are needed, both on the country level and in the framework of the common European policy, in order to assure a healthy economic growth in the CEE area and to maintain the convergence process within the EU.