Income convergence prospects in Europe: Assessing the role of human capital dynamics

• Published in: Economic systems 2013-12, Vol.37 (4), p.493-507
• Main Authors: Crespo Cuaresma, Jesus, Havettová, Miroslava, Lábaj, Martin
• Format: Article
• Language: English
• Subjects: Analysis; Convergence; Economic growth; Economic systems; Economic theory; Education; Emerging economies; Emerging markets; Europe; Human capital; Income; Income convergence; Income projections; Investment; Studies
• ISSN: 0939-3625; 1878-5433
• DOI: 10.1016/j.ecosys.2013.02.004

•We use income projection models based on human capital dynamics to assess the future role of education on growth in Europe.•We combine modern demographic projection methods with economic growth regressions based on panel data models.•Our results show that the returns to investing in education in terms of income convergence in Europe are sizeable, although it may take relatively long for the poorer economies of the region to rip the growth benefits. We employ income projection models based on human capital dynamics in order to assess quantitatively the role that educational improvements are expected to play as a driver of future income convergence in Europe. We concentrate on income convergence dynamics between emerging economies in Central and Eastern Europe and Western European countries during the next 50 years. Our results indicate that improvements in human capital contribute significantly to the income convergence potential of European emerging economies. Using realistic scenarios, we quantify the effect that future human capital investment paths are expected to have in terms of speeding up the income convergence process in the region. The income projection exercise shows that the returns to education in terms of income convergence in Europe could be sizeable, although it may take relatively long for the poorer economies of the region to rip the growth benefits.