| A multi-faceted approach is taken to analyze absolute and conditional convergence in the European Union (EU) by examining three dependent variables: GDP per capita, labor productivity, and investment per worker. The periods of analysis are 1961--2005, 1975--2005, and 1996--2005. Three statistical methods are used to analyze each dependent variable: a cross-sectional method in the Barro and Sala-i-Martin tradition; a pooled cross-sectional time-series method using panel data introducing time variation; and, finally, a LSDV fixed effects (FE) method to account for possible unobservable heterogeneity between observational units and across time.;In order to address the problem of disparate levels of economic development in the EU, the Structural Funds program was implemented as a mechanism for disbursing development aid in an effort to reduce economic imbalances and promote economic convergence. For the period 1975--2005, the study examines the influence of the Structural Funds (specifically the European Regional Development Fund [ERDF]) on economic growth and convergence in the EU Member States prior to the recent accessions. In the period 1996--2005, the analysis is extended to include indicators of institutional quality.;The main findings of the study show that there is convergence among the EU countries, where poorer countries grow faster than richer countries. However, it appears that the reason countries grow faster is the inherent, unobservable or unmeasured characteristics of countries and across time as shown in the fixed effects models. This indicates that faster growth is not achieved simply because countries have lower levels of economic development as neoclassical theory implies, nor is it because of measured characteristics included in the model. Instead, it appears that there are inherent, unobservable or unmeasured characteristics of countries and time driving the economic growth process in poorer EU Member States. Finally, the analysis finds that the ERDF generally has a positive, but mild, effect on economic growth. |
