Income Convergence: A Case Study for the EURO

This paper examines the beta convergence hypothesis for the first 12 nations that joined the European Monetary Union. It seeks to determine whether monetary integration, through the inclusion of a dummy variable, reduced poverty in the countries involved. The period analysed is from 1971 to 2010, with data provided by the Penn World Table and the World Bank. In addition, inequality indicators are calculated, such as the Theil index, the coefficient of variation (sigma convergence) and the ratio of extremes between wealth and poverty, which will shape a European growth pattern. To test whether convergence exists, the methodology proposed by Barro (1991) is used, as well as the incorporation of the panel data model, combined with the fixed effect, carried out by Abitante (2007) and Bertussi (2009). The results found point to a situation of income divergence, that is, there is no conditional convergence, so the richest nations grow at higher rates than the poor, leading to the prolongation of inequalities.