Thursday, 3 February 2011

Is EU convergence an impossible dream or even desirable

The pace of change towards knowledge based societies is increasing with an enormous growth in foreign direct investments (FDI) in the Central and East European states as seen in Figures 1 [1].  However, these are highly variable and tend to lead to single supply chain investments that during periods of global recession can put these supply chains at risk Figure 2 [1].

A knowledge economy is characterised by a high dependency on human capital [2,3] and through transition and skills development it is possible to re-invent regional competitiveness [4]. Advanced industrial economies will soon generate 50% of their GDP and employment from knowledge based industries and over 70% of total company value is in knowledge or skill based assets [5]

Therefore, a model that can create vital, viable and vibrant economies will support the diffusion of knowledge within a more diversified and sustainable economy while minimising single supply chain dependences.   In migrating from a post-industrial society to one based on knowledge, economies need to reverse the depletion of skills and knowledge from repeated urbanisation cycles and develop the works force to meet the needs of the economy.

Such economic transitions benefit from access to university and business interactions [6] and a focus on the way knowledge is transferred to the workforce. Building on Schumpeterian economic models of “creative destruction”, innovation is a key driver for competitive capitalism and the development of social and human capital [7,8] and in identifying champions [9] to drive through this diffusion of knowledge. 

Is accession state governance adequate to support economic convergence
An effective economic development model should identify the appropriate quest [10],  harness and access existing knowledge, tacit and explicit [11], to aid the route to market [12] and form knowledge clusters and skills pools capable of deploying improved competitive advantage and wealth creation [13].

Knowledge economies rely on boundary workers moving easily between sectors to maintain networks of informal information sources to distribute knowledge effectively.  In accession pathways fragmentation or abuse of knowledge [14] can result in chaotic growth and the successful development of absorptive capacity [15].

Therefore, any model should endeavour to minimise the difficulty of establishing administrative adequacy [16,17] and in retaining trained staff expertise over the funding cycle[18].  

It is critical to recognise and promote “learning by doing”, by allowing time to gain knowledge as well as the know-how, to make it work.   The tacit knowledge or know-how to make it work is an essential element of mentoring or twinning programmes where it is hoped that experience can be shared and transferred in a sustainable manner.

Can new access states ever reach convergence with established EU states

EU accession states experience rapid economic changes and cycles during transition to a new economic model and responding to the recent global economic crisis [19].

However, when the relationship, as shown in Figure 3, between accession states and the original six member countries as the base GDP reference economy is compared, the convergence clusters reflect their original economic profiles in contrast to EU convergence strategies and reports [20].

Indeed the absence of any significant industrialisation within these economies or time taken to develop effective multi-level government structures [21] has a significant effect on the development of a post-industrial knowledge based economy [22].

Agriculture continues to diminish as a proportion of GDP, Figure 4, and this reflects its relative contribution to the rural economy and the need to generate viable alternatives that can replace or increase value added products at the local level.  By supporting the creation of knowledge concentrations [23] it is possible to build sustainable competitive advantage.

To create economic growth, firms must seek knowledge [24] and clusters of expertise or knowledge can assist in sharing or accessing local tacit knowledge potentially making proximity important measure in retaining relevant and transferable knowledge.

Therefore these differences in national GDP levels can support local and regional cooperative comparative advantages that can be exploited for the benefit of rural economies [25] and can help develop economises of scale and specialisation[26,27].

 Is this failure of convergence a sustainable regional comparative advantage

Source: Eurostat [28]

Convergence is highly variable across the regions [28,29] with long term consequences for the development in less developed and rural areas [30] as knowledge based economies migrate to the most developed areas. Figures 5 and 6 illustrate how newer EU economic regions are clustered together.  While convergence across the EU is variable, convergence at a regional level allows the development of skills and competitive advantage locally [31].

Source: Eurostat [28]

Thus, the real possibility that economic convergence is an unattainable goal for the European Union lays bare the challenges moving forward for the Eurozone.  However, at the regional level local failures to converge offer real potential to retain  comparative advantage to create viable, vital and vibrant economies.


[1]        Reinventing European growth, Ernst & Young’s European Attractiveness survey, 2009, EGYM Limited$FILE/EY_European_Attractiveness_Survey_2009.pdf
[2]           Powell, W. and Snellman,K., The Knowledge Economy, Annual review of Sociology, 2004,  vol 30, 199-220

[3]           Wolfe,D.,A., and Bramwell,A., Innovation, creativity and governance: Social dynamics of economic performance in city-regions.   Innovation: Management, Policy & Practice vol 10  Issue: 2-3 Innovation and the City - Innovative Cities, 2008, 170-182

[4]           Glaeser, E., Reinventing Boston:1640:2004, Journal of Economic Geography, 2004, 5, 119-153
[5]           Skills for the future. (2007)  Accenture Ltd.
[6]           Temouth, P., Gamer, C., Mongeon, M. Cope, J. and Kneller, R., University –Business interaction: a comparative study of mechanisms and incentives in four countries, 2009,  Council for Industry and Higher Education, London
[7]           Ederer, P., Innovation at Work:The European Human Capital Index, The Lisbon Council for Economic Competitiveness and Social Renewal, 2006, Belgium
[8]           Ederer,P., Schuler, P. and Willms, S. The European Human Capital Index: The Challenge of Central and Eastern Europe The Lisbon Council for Economic Competitiveness and Social Renewal, 2007 Belgium
[9]           Rogers, E. M. Diffusion of innovations, 1962, New York: Free Press
[10]         Stokes, D., Pasteur’s Quadrant, The Brookings Institution, 1997,Washington DC
[11]         Cash, A., Hughes A., and Lester R. K., U.K. plc: Just How Innovative Are We?, 2006,  Cambridge, U.K.:Cambridge-MIT Institute.
[12]         Abreu, M., Grinevich, V., Hughes, A., Kitson, M., and Ternouth, P., Universities, business and knowledge exchange, Council for Industry and Higher Education, 2008,  London
[13]         Knowledge Transfer partnerships, , 2010, Crown Copyright
[14]         Fink-Hafner, D. Europeanization in managing EU Affairs: between divergence and Convergence, a comparative study of Estonia, Hungary and Slovenia. Public Administration, 2007, Vol. 85, No. 3, (805–828)
[15]         Emerson, M., Aydin, S., De Clerck-Sachsse, J. and  Noutcheva, G. Just what is this “absorption capacity” of the European Union, Policy Brief ,2006, No 113, Sept, Centre for European Policy  Studies
[16]         Recovery of SAPARD funds begin. (2007)
[17]         Author’s personal knowledge gained from discussions with a variety of accession state central and regional government ministries and agencies between 2002 and  2006
[18]         Šumpíkov,M., Pavel,J. and Klaza, S., EU Funds: Absorption Capacity and Effectiveness of Their Use, with Focus on Regional Level in the Czech Republic, 2004,
[19]         Dolphin,T. and Chappell, L., The Effect of the Global Financial Crisis on Emerging and Developing Economies. Sept Report (2010), Institute for Public Policy Research, London,
[20]         Growing Regions, Growing Europe. Fourth report on Economic and Social Cohesion, Office for official publications of the European Communities, 2007, Luxembourg.
[21]         Meyer-Sahlin, J-H., Sustainability of civil service reforms in central and eastern Europe five years after EU accession. Sigma paper N.44 Gov / Sigma, 2009, OECD
[22]         Chorianopoulos, I. North-South local authority and governance differences in EU networks. European Planning Studies, 2003,Vol 11, No. 6, pp 671-695
[23]         Smith, S.C., Innovation and market strategy in Italian Cooperatives: Econometric evidence on organisational comparative advantage. Journal of Economic Behavior & Organization,1994,  Vol 23, Issue 3, May, Pages 303-320
[24]         Simmie, J., Innovation and urban regions as national and international nodes for transfer and sharing of knowledge. Regional Studies, 2003,vol. 37. 6&7, pp 607-620
[25]         Stevens, C., Mapping innovation, The OECD Observer, 1997 ,No.207, Aug/Sept. pp16-19
[26]         Kaldor, N., The case for regional policies, Scot. J. Pol. Econ., 1970, November, pp337-48
[27]         Dixon,R.J. and Thirwall, A.P., A model of regional growth rate differentials along Kaldorian lines, Oxf. Econ. Pap, 1975 27(2): pp 201-214
[29]         Bachtlet,J. Gorzelak, G. Reforming EU cohesion policy: A re-appraisal of the performance of the structural funds. Policy Studies, 2007, Vol 28, No. 4, 309-326
[30]         Rizov, M., Rural Development Perspectives in Enlarging Europe: The Implications of CAP Reforms and Agricultural, Transition in Accession Countries. European Planning Studies, 2006, Vol. 14, No. 2,pp 219-238
[31]         Chorianopoulos, I., Urban Restructuring and Governance :North–South Differences in Europe and the EUURBAN Initiative. Urban Studies, 2002, Vol. 39, No. 4, 705–726

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