Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154621
Authors: 
Mongelli, Francesco Paolo
Reinhold, Elisa
Papadopoulos, Georgios
Year of Publication: 
2016
Series/Report no.: 
ECB Occasional Paper 168
Abstract: 
Euro area countries exhibited modest convergence prior to the financial crisis and diverged thereafter. Such divergence has been examined from many angles, and various narratives of the crisis have developed. Surprisingly, the gradual transformation of the economic structures of euro area countries over the last 15-20 years has, however, received less attention. This paper brings together several strands of evidence - both macro and micro - on such economic transformation. It makes three contributions. First, profound changes are found in the allocation of countries’ resources across sectors as had been predicted prior to the launch of the euro. In some cases, transformation precedes the launch of the euro, such as the industrial sector, and might reflect different comparative advantages. Such specialisation is not problematic, and is generally accompanied by diverse risk sharing channels. Yet, the second contribution of this paper is to show instead that in some euro area countries productive resources were misallocated to less efficient and lower productivity sectors. In order to distinguish between good and bad specialisation, a firm-based database is examined. The third contribution shows that frictions play an important role in preventing the shift of resources towards more productive firms and thus reduce the potential growth of some countries. This might then explain in part the modest convergence and then divergence of euro area countries.
Subjects: 
convergence
euro area
productivity
risk-sharing
specialisation
JEL: 
E01
F45
J21
O47
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2000-1
Document Type: 
Research Report

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