Old Wine in New Bottle: What Really Causes Growth Convergence?

In this paper, we explore convergence of real per capita output across the

European Union (EU) countries, as well as the transitional behavior of possible

underlying factors that are responsible for any convergence or divergence pattern.

The new panel convergence methodology developed by Phillips and Sul (2007) is

employed in a production function growth accounting approach and data from the

Total Economy Database and the Total Economy Growth Accounting Database. The

empirical findings suggest that the EU countries form two distinct convergent clubs,

exhibiting considerable heterogeneity in the underlying growth factors. These

findings should help policy makers in designing appropriate growth-oriented

programs as well as in setting priorities in their implementation.