Cross country income convergence analysis: EU countries and Turkey

Convergence can be defined as decline of income difference between countries through time. Convergence hypothesis was discussed through economic history and taken its last form with Neo-Classical Growth Theory. With development of econometric methods, many different analysis are proposed for convergence hypothesis. Both cross country and within country convergence analysis' are important; because they show how income difference changes over time. Besides, the effects of population growth rate, depreciation rate, saving rate and techological change, which are exogenous variables in Neo-Classical Growth Theory, on income levels of countries can be examined with convergence analysis. In this study convergence analysis between Turkey and European Union countries is made by adopting Carlino and Mills (1993)'s time series method. First, unit root tests are applied to the differences of per capita gross domestic product between Turkey and selected European Union countries. Second stage is held with stationary series according to unit root tests. Second stage consists of regression analysis and evaluation about convergence according to coefficients. Results of the analysis show that there is β convergence since 1990's between Turkey and Austria, Belgium, Denmark, Finland, France, Italy, Sweeden and Portugal. Another important result is divergence between Turkey-Greece and Turkey-United Kingdom. The difference series of Ireland, Netherlands, Spain and EU average are not stationary; so regression analysis could not be done for them. Convergence evaluation could not be done between Turkey and non-stationary countries.