Club Convergence in the European Union - Analyzing the Impact of the Financial Crisis of 2008

Abstract: The aim of this paper is to empirically identify the impact of the financial crisis of 2008 on the mechanisms of within-club convergence of GDP per capita, for the 27 member countries of the European Union. To tackle this issue, the author first uses spatial filtering methods to identify club formation under a concept of bimodal distribution and then proposes a two-stage framework in which unconditional and conditional convergence are estimated before and after the crisis period. Regression analysis is performed with the use of ordinary least squares method. The results indicate that within club convergence rate slows down for the high income club after the hit of the financial crisis. However, the intriguing results of the low income club regression analysis make space for some very interesting inferences and set the basic foundation for future research.