ECONOMIC CONVERGENCE OF BALKAN REGION TO EUROPEAN UNION Prof. Ermelinda Meksi University of Tirana, Faculty of Economics

Convergence Notion Convergence classical concept: The income level of poorer countries of the world should converge to those of richer ones Convergence Debate There are debates on the convergence, interpretations, implications, and absorptive capacities within the neoclassical growth theories and new growth theories What conditions and policies the developing economies have to apply in order to reduce the gap with the developed world ,“the Word is not flat”? There are debates on the convergence,but beyond that what are conditions and policies the developing economies have to apply in order to reduce the gap with the developed world ,“the Word is not flat”?

SCOPE OF PRESENTATION To estimate the speed of convergence of Balkan region (β convergence parameter) with EU To estimate if the disparities in the income per capita in the Balkan and with EU have diminished or not (σ-convergence ) To look into the structural change and agriculture sector convergence The way forward for policy makers According to N. Islam, convergence debate has led to different interpretations , but we would focus :β-convergence vs. σ-convergence The paper will calculate Beta convergence and sigma convergence to see if countries are growing and if there is a reduction of disparities at the income level. β convergence parameter gives information on the speed of convergence or what distance from the steady state (EU GDP per capita) is covered annually. Sigma convergence involves a decline over time in the cross-sectional dispersion of per capita income. In the paper two regional perspectives are considered: among the countries in the Balkan region; among the last thirteen EU members:

Hypothesis raised by the paper The Western Balkan Countries are diminishing the Income Gap with EU; Structural Changes are converging with Western Balkans; Public Policies are supporting the fast catch up process. Here are treated the hypothesis or assumptions that the paper will test using Beta and sigma convergence models.

Beta convergence in Balkan Countries It is confirmed that less developed countries such as Albania, B-H in the Balkans have grown faster than the developed countries of the region, Croatia .Serbia for the period 1995 – 2012, Or among recent EU members Romania and Baltik countries than Slovenia,Ciprus,Malta Czech Rep, but the speed of convergence has been slightly higher in the thirteen new members of EU than in the Balkan countries Calculations of the authors. Source of data, World Bank database

Sigma convergence The estimation of convergence in Balkan countries in terms of income per capita with each other, through the trend line slope of the regression of standard deviation of GDP per capita per each year of the period 1995-2012 The disparities in the income per capita among Balkan countries have diminished, in particular in early 2000 In particular it is noted that Romania and Bulgaria have increased rapidly the weight of their GDP per capita toward EU at the pre-accession moment and after the accession to EU

Change in the ratio of GDP per capita of Balkan Countries towards EU GDP per capita EU Countries The disparities in the income per capita among Balkan countries toward EU have diminished. It is impressive, the increase of weight in poorest countries of the region such as Bosnia and Herzegovina and Albania although they are still lagging far from EU GDP per capita. It is noted that Romania, Bulgaria and Croatia have increased rapidly the weight of their GDP per capita toward EU at the pre-accession moment and after the accession to EU Calculation of the author, Source of data from the World Bank Database

Convergence gap of western Balkan countries to Croatia, when accessed EU in 2013 Country GDP per capita 2013, PPP (current international $) Option I (Beta as average growth of converg) No of Years Option II (expected annual growth for 2015-2019 according to IMF No of years Montenegro 14.132 5,3% 8 3,3% 13 Serbia 13.020 9,6 2% Macedonia 11.612 11,8 3,9% 16 Albania 10.374 14 4,2% 17 Bosnia and Herzegovina 9.536 15,6 3,8% 21 In the table, it is calcutated the catching up to Croatia GDP per capita in 2013, at the moment of accession In the table two scenarious of growth are considered , the first one by Beta convergence as the average growth of convergence and the second one by the annual growth foreseen in 2014. Calculation of the author, source of data, World Bank and IMF World Economic Outlook, October 2014.

Convergence gap of Western Balkan Countries to EU Country GDP per capita in 2013 in PPP(current international $) Expected annual growth 2015-2019 % No of years Montenegro 14.132 3,3 68 Serbia 13.020 3,8 55 Macedonia 11.612 3,9 58 Albania 10.374 4,2 Bosnia and Herzegovina 9.536 72 EU 35.501 1,9 Balkan countries need to accelerate its growth rate in order to reduce the gap to convergence with EU. Thus, is necessary the establishment of strong and reliable institutions, political stability, promotion of business climate, to guide the further economic convergence and welfare of Albanian people. Calculation of the author, source of data, IMF World Economic Outlook, October 2014 and World Bank Data. For Serbia is calculated as expected growth the average growth for the period 2000-2010 as the best years of positive growth considering that for most of the other years the data were fluctuating on negative values making difficult the application of the same model as in other countries.

Agriculture Added Value in GDP over the years for Balkan Countries and EU Agriculture is the main sector affected by development according to growth theories : By reducing the contribution to GDP and experiencing the improvment of productivity due to the use of technology Convergence in this sector would be assessed in terms of productivity convergence with developed countries. Agriculture as a strategic sector not only for Balkans but even for EU countriesIn the graph on the left there are the Balkan countries aspiring EU, while on the right it is EU and Balkan countries EU member. It is noted that in Albania the agriculture sector in GDP is significantly important compared to the other countries, even though it’s half of the value compared to 1995 it is still very high about 22%.of GDP Whereas, in the other Balkan countries about 10% of GDP, but compared to the average of EU countries at about 1,7 of GDP.it still remains extremely high. This shows that Balkan countries pay high attention to agriculture, a sector which is relatively not so important towards GDP in other EU countries. Source: World Bank Database

Convergence of Productivity in Agriculture with EU (through the dispersion of Agriculture value added per worker of EU with each Balkan country) From 1995 – 2013 it is noted that Although the bigger share of agriculture sector contribution to GDP,there is a significant difference on the agriculture productivity of candidate states toward the one of EU member states. Balkan countries, already EU members, such as Slovenia, Bulgaria, Romania and Croatia, have had a significant productivity growth especially Slovenia and Croatia, in the last decade, most probably on the exchange of best practice or technology development in this sector.Albania, Serbia and Montenegro have productivity in this sector far from EU countries,therefore would need more time and work to achieve the EU one Calculation of the author. Source of data: World Bank Database

Findings Balkan countries: Higher growth rates but slower convergence rate than EU Countries. The new members of EU: Higher speed of convergence than Balkan countries, example:Romania and Bulgaria at the pre-accession moment and after the accession to EU. The global crisis impact is continuing to be felt in Balkan countries with lower rates of growth after 2009, increasing the gap with EU. It is necessary, the establishment of strong and reliable institutions, political stability, promotion of business climate, to guide the further economic convergence and welfare It is confirmed that the less developed countries have grown faster than the developed one for the period 1995 – 2012, but the speed of convergence has been slightly higher for the thirteen new members of EU than in the Balkan countries

Conclusions European integration- best practices- the speed of the convergence in agriculture The case of Slovenia, Bulgaria, Croatia Albania, Serbia and Montenegro have productivity in this sector too far from EU countries,therefore will need more time and work to achieve the EU average growth Balkan countries should implement "benchmarking“ the best practices- to speed up the convergence To speed up the proces of European integration in Balkan countries they should implement the- best practices- for inst the best paractises of the convergence in agriculture Slovenia, Bulgaria, and Croatia

REFLECTIONS Considering the situation in Greece   Considering the situation in Greece The huge pre-gap in particular in agriculture sector existing among Balkan and EU countries “The world is not flat" therefore convergence is a dynamic process that requires a proactive role of the public policies. Should we re-estimate new tools and approaches to address: potentials of development, accumulation of resources, productivity in particular on human capital,principal players -institution and political factors as well as tools of collaboration among the concerned countries that may contribute to the convergence? Could the distribution of IPA funds for Balkan candidate and potential countries folloing the principle of merits and not according to the needs of these countries, weaken the contries lacking qualified human resources in the region? The situation in Greece due to the lower level at the stage it became an EU member. Could the receiving of IPA funds for Balkan candidate and potential countries under the principle of merits and not according to the needs of these countries, weaken the countries lacking qualified human resources in the region?