Note Two: Accelerating Europe’s Income Convergence through Further Integration
Raising Europe’s growth requires economic convergence meaning that activity expands the fastest where opportunities are the largest. EU accession has been a catalyst for convergence in the past and could be so again in the future. During the early 2000s, the prospect of joining the EU, followed by actual membership, helped put the necessary conditions in place: effective integration and structural reforms opened economies and improved their connectedness, benefiting both old and new member states (MSs). Due to EU accession, average regional GDP per capita in new MSs increased by more than 30 percent, with larger gains for poorer regions. Productivity catch-up, driven by innovation and higher educational attainment, along with substantial capital investment, primarily through FDI, contributed equally. More recently, productivity growth slowed. Based on new estimates, Europe’s income gap to the US could be reduced by around 10 percentage points through a new enlargement round. If paired with deeper integration to reduce remaining barriers within the EU, benefits could be magnified.
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