Western Balkans countries income convergence in the context of EU membership – dynamics and determinants

Abstract

The Western Balkan countries face relatively low levels of income over a longer period of time, indicating insufficient dynamics and intensity of income convergence, compared to the developed EU economies. The issue of income convergence of Western Balkan countries is particularly important in the context of their EU membership. The paper tests the existence and dynamics of income convergence of the Western Balkan Economies using both sigma (σ) and the beta (β) measures of real convergence. The evaluation of the appropriateness of the income convergence dynamics of the Western Balkan Economies is derived on the basis of a comparative analysis with the achievements of the New Member States, Baltic countries and EU - 14 in the last 20 years. The results outline that Western Balkan countries are stagnating, and they have the slowest convergence. In addition, this paper makes an overview by fixed effects panel data model of the determinants of the convergence process in the Western Balkan countries to the EU-14, taking them as complementary part of this proces. The results show that Western Balkan countries should focus mainly on agriculture and banking sector reforms in order to speed-up the convergence process.