Sustainable and Equitable Convergence and Integration in CESEE

The EU member states in CESEE have converged relatively rapidly to the global frontier, some even during the recent crisis. Some, but not all, are well positioned to enjoy continued convergence. Nevertheless, convergence bottlenecks are emerging and continued reforms efforts will be needed throughout the region to remove these bottlenecks. Convergence becomes an increasingly challenging process as these countries get closer to the frontier, and as other converging countries in increasing numbers also do so. EU membership has and will in the future potentially help convergence through several private and public channels, but in itself EU membership is not a guarantee for continued convergence. Reforms will be needed to utilise this potential well. The emergence of convergence bottlenecks is closely related to social inequality and issues related to the quality of government. In fact, there is an inherent contradiction between the desire to move towards the frontier and the lack of attention, capacity or willingness to address such problems. In an innovation-based economy, innovation is not an activity of a privileged few, so it should be part of everyone's life to move close to the global frontier. This requires that countries fully utilize all the talent they have. To achieve this, they need to address persisting socioeconomic inequalities. Access to high quality education for all is key in this regard. In the current environment, reform reversals are particularly harmful for convergence as many low-middle income countries are on the threshold of improving their growth fundamentals rapidly. Slowing down or reversing reforms in such an environment may have major negative impacts on convergence