European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

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

Jesus Crespo Cuaresma (), Miroslava Havettova () and Martin Labaj ()
Additional contact information
Jesus Crespo Cuaresma: Department of Economics, Vienna University of Economics and Business
Miroslava Havettova: Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava
Martin Labaj: Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava and Institute of Economic Research, Slovak Academy of Sciences

Abstract: 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 investments 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 investing in 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.

Keywords: Economic growth, income convergence, human capital, income projections, Europe, emerging economies

JEL-codes: O47; O52; I25; P27 July 2012

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