Structural convergence of European countries

We investigate the development of economic structures of Western European countries over the last three decades using employment data. We test for structural convergence on the aggregate level as well as specifically for manufacturing and service industries. For this we implement both time-series and panel data methods. Our results indicate strong and persistent intersectoral convergence patterns as lagging countries shift from industrialized to service economies. In contrast, the results regarding inter-industry convergence are mixed: due to one-country specialization effects, increasing divergence is dominant in technology-intensive manufacturing industries, which are characterized by economies of scale, path-dependency and strong economic growth. In less technology-intensive industries both convergence and divergence trends are found, depending on the existence of economies of scale. In traditional service branches, country-specific differences do not change to a significant extent, whereas in some industries with potential for rationalization, σ-convergence prevails.