Montenegrin Journal of Economics

The Role Of International Trade In Convergence Process

Davor Mikulic and Ivan Kovac

2012, vol. 8, no. 4, p. 7-26

Over the past decades, the issue of convergence in the European Union has been the subject of a wide range of empirical research. The model most widely used for testing convergence hypotheses is beta-convergence analysis. Beta-convergence is defined as a negative relation between the initial income level and the income growth rate, meaning the less developed regions are expected to record higher growth rates. According to the absolute convergence hypothesis, all regions converge towards the same steady state equilibrium. On the other hand, conditional convergence model controls for other differences in cross-sectional units that could produce different steady-state. Other factors usually included in econometric modelling of convergence are demographic variables, labour market conditions, industrial structure, institutional factors and overall government policy. In this paper, the role of international trade in convergence process has also been investigated. The main hypothesis tested in this work is that openness and international trade significantly support process of convergence in EU. On the other hand process of convergence is not evident for Croatian's regions and role of international trade is less significant in explaining regional growth patterns. Besides descriptive statistics econometric modelling is used for confirmation of the hypothesis.

suggested citation:

Davor Mikulic and Ivan Kovac. "The Role Of International Trade In Convergence Process." Montenegrin Journal of Economics. vol. 8, no. 4, 2012, p. 7-26

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