Convergence of Economic Structures of Central and Eastern European Countries within the European Union

Abstract

Objective: To assess the similarity of the economic structures of Central and Eastern Europe countries within the European Union.

Research Design & Methods: The study was conducted with the use of an hierarchical cluster analysis for the years 2004 and 2019.

Findings: The research uncovered signs of both divergence and convergence. On the one hand, attention should be paid to the increased diversification of economic sub-sectors, a fairly clear division of all EU members into two blocks of countries (old countries and CEE countries) or small but positive changes in the average gross value added in economic sub-sectors in the countries. At the same time, the Euclidean distances between the CEE countries and the “model” structure consisting of 12 euro area countries have decreased, which indicates convergence. However, comparing the situation of all CEE countries, it cannot be unequivocally stated that the adoption of the euro had a noticeable impact on the convergence of the economic structure of a given country with the structure of the old EU countries that formed this group. However, this remains a partial assessment of real convergence and it is not definitive.

Implications / Recommendations: Based on the conducted research, it is difficult to formulate definitive conclusions. The similarity of gross value added structures within the EU reflects various processes and phenomena taking place in economies that are characterised by both convergence and divergence tendencies (labour productivity, wage level, consumption, savings, situation on the labour market, investment inflow, foreign trade, synchronisation of business cycles). This is why participation in the common market and monetary union must be supported by institutional and regulatory reforms. All the observed divergence aspects are a premise for reconsidering economic policies that should foster the convergence of the GDP structures of the CEE countries. The impulse associated with the process of European integration could shape different development trajectories for individual countries.

Contribution: The research presented makes it possible to assess the convergence of the CEE countries. This is a very important issue in the context of new challenges for EU economies, such as the effects of the pandemic and war in Ukraine, and in view of the inadequacy of the official convergence criteria to the macroeconomic reality.