Convergence crisis in the new Member States
Péter Halmai, professor, Pannon University, Hungary
Viktória Vásáry, assistant professor, Pannon University, Hungary
Objectives:
- - - Data, method: Simulations using production function methods based on the AMECO database, growth accounting analysis. By means of the quantitative analysis the Member States can be grouped based on the future development of their potential growth. The detailed growth accounting analysis indicates the potential contribution of the individual factors to the potential growth in each Member States. Results: The European growth potential is getting out of breath. According to current trends (simulations based on production function and unchanged policy) significant further decrease in the potential growth is unavoidable (in 2-3 decades the potential growth rate might be cut half). In order to quantify the impacts of the risks there is a need for alternative scenarios. Taking into account the uncertainty as regards the duration and type of the decrease in economic performance temporary and permanents shocks need to be differentiated, which are represented by different scenarios. The growth and convergence is expected to develop unfavourably in those new EU Member States, which face vulnerable equilibrium. At the same time permanent shocks would result in the complete collapse of the growth and catch-up models in Europe. In the case of this scenario in the long term one fifth of the potential output would fall out and the chances of real convergence would deteriorate dramatically, though differently country by country. JEL codes: F43, F47, F15, E60, O11, O47