Some new insights on economic convergence and growth in Central, Eastern, and Southeastern Europe

The existing empirical literature on economic convergence and growth emphasises the importance of foreign capital inflows for Central, East and South-East Europe (CESEE). This paper challenges such arguments by stating that not all forms of foreign capital inflows are beneficial for the economic growth of CESEE countries. Our results suggest that remittances (as an alternative foreign capital inflow) tend to slow down economic growth. Moreover, apart from the prevailing trends to investigate the economic convergence of CESEE towards Western European countries, this paper focuses on economic convergence within the CESEE region, that is, on economic convergence of the non-EU CESEE countries towards EU-CESEE countries. We found that, in the last two decades, the living standard in the CESEE region has become increasingly equal. There is a tendency for poorer non-EU CESEE countries to grow faster than richer EU CESEE countries, which confirms the existence of absolute β-convergence. We have also found that each CESEE country converges 2.8 percent closer to its own steady state, in the sense of conditional β, every year.