Convergence beyond the economic sphere: Effects and feedbacks of Euro-Med integration

FEM34-21 | October 2012

Title

« Convergence beyond the economic sphere: Effects and feedbacks of Euro-Med integration »

By

Bernd Lucke, Institute for Growth and Fluctuations, University of Hamburg, Germany

Contributeurs

Prof. Selim Cagatay, Centre for Economic Research on Mediterranean Countries, Economics Department, Akdeniz University, TurkeyProf. Suleyman Degirmen, Economics Department, Mersin University, Turkey

Note :

This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Summary :

This report is structured in three parts. In part I we study convergence in a multifaceted sense across Mediterranean partner countries. We focus on ?social? indicators which measure the quality of life beyond familiar economic statistics. We find that there is some evidence that the Barcelona Initiative may have improved living conditions beyond the purely economic sphere. While the evidence is statistically robust, it is nevertheless spotty and no systematic pattern emerges.In part II, we put special emphasis on convergence in terms of institutions and regulatory environments. We check if convergence processes can be seen as the result of economic integration under the auspices of the Euro-Med partnership. We find institutional divergence in some areas, e.g. government intervention to the economy, capital flows and foreign investment, and convergence in others, e. g. banking, financial services, But the evidence must be cautiously received since the statistical support is often weak.In part III we view the macroeconomic development as endogenous. We use augmented growth and gravity regressions to quantify the impact of living conditions on both the volume and the structure of trade. Unfortunately, data quality and availabiliy limit the scope of the analysis. Still, and in line with the theoretical literature, we find that both a deterioration and an improvement in living conditions may increase trade. For the former, a deterioration increases migration and immigrants tend to strenghten trade between their new home country and their country of origin. For the latter, improvements like better education may raise the marginal product of labor and hence stimulate exports via a productivity effect and imports via an income effect.