Marginal vertical convergence : new approach in real convergence analysis

Purpose: The main aim of this paper is to present a concept of marginal vertical income convergence. This method allows to determine the individual contribution of the objects (countries, regions) to the observed general process of real convergence.

Design/Methodology/Approach: Proposed methodology allows to avoid the limitations of the classical analysis of income convergence. To check the cross-country stability of the parameters and to assess an individual contribution to convergence process, separate regressions for all EU member states was provided. The differences between coefficients of the model based on full sample and coefficients specific for a particular country indicate this individual effect.

Findings: The empirical results show that in 1993-2018 we can observe an absolute β income convergence within the European Union, accelerated after 2008-2009’s crisis period. However, the main conclusion is that the contribution to the overall process of levelling out GDP per capita within the EU was different from one member state to another. Received results confirmed that outliers removing allows to increase the quality of used models and the reliability of formulated interpretations.

Practical Implications: Different values of marginal vertical income convergence are caused by differences in the dynamics of economic growth of individual countries, their different resistance to economic shocks, as well as different levels of inequality and distribution of income and wealth. Recognition of such differences is the first step in developing policies aimed at reducing discrepancies among national behaviours that could be observed as a background of a general convergence process.

Originality/value: This research presents new concept of cross-sectional real convergence analysis built on the long period sample covering pre- and post-crisis time for all EU member countries. Additional contribution of the undergone study is robustness analysis that make allowances of outlier’s impact.