Income Convergence and Economic Integration: Evidence from European Union

Abstract

Income convergence is a subject of debate since the formulation of the Robert Solow`sneoclassical growth model and it represents a situation when poor countries have faster growth than rich countries. The main cause of income convergence lies in the diminishing returns of production factors, especially the capital. In contrast to these traditional growth models, recent theory does not predict the existence of convergence, nor diminishing returns. The same situation is when it comes to convergence and the effects of economic integration. On the one side are theorists who claim that poorer countries and those that have most recently joined a union, have faster growth than the richer countries of that union. The aim of this paper is to present the phenomenon of income convergence, as well as its interdependence with economic integration. The paper gives an overview of some of the most influential research about income convergence among countries of the European Union, which is a good example of perceiving this interdependence.