The Promised Land or a Mirage? The Puzzling Divergence of the European Union's Periphery

Using a Balance-of-Payments Constrained Growth model and a Convergence Quadrants Diagram this paper finds evidence of economic divergence of most European Union (EU) peripheral member states and the EU average between 1996 and 2019. In only two cases – Spain and Cyprus – do we find a trend of economic convergence, but which was of an unsustainable nature since it was accompanied by growing external imbalances. Further, using a productivity convergence/divergence model this paper again finds evidence of productivity divergence between peripheral member states and the EU average between 1996 and 2019, though it finds evidence of productivity convergence between 1996 and 2008.In the 2009-2019 period, productivity divergence was driven by a more pronounced reduction in the income elasticity of exports than in the income elasticity of imports and by a reduction in the importance of economies of scale