Regional Integration and Real Convergence: Evidence from MENA Countries

Abstract

This article analyses and explains the real convergence process in MENA countries over the past 50 years. It provides a threefold contribution. Firstly, given the recent increasing attention paid to the Euro-Mediterranean area, it focuses on the convergence of MENA countries towards the EU per capita income. Second, it provides an econometric modelling of the determinants of convergence. Finally, it is based on a wide set of convergence indicators applied to various measures of per capita income as well as the Human Development Index (HDI). Results show that despite a lack of s-convergence for the MENA region taken as a whole, the convergence hypothesis is accepted using the g and [beta]-convergence tests, especially for Tunisia, Egypt, Turkey and Morocco. However, there is evidence of divergence for Jordan and Algeria. It is also shown that the convergence process strongly depends on education, R&D, transport and infrastructure as well as public investment. By contrast, there is no direct impact of the regional integration process with the EU, although the EIB loans positively contribute to the convergence process. Finally, trade specialization and firm agglomeration have been detrimental to convergence of MENA countries. JEL Classification: O47