In our recent study, The Future of EU Cohesion, which we presented during the 2022 European Week of Regions and Cities, we provided an outlook on how the green and digital transition may alter the landscape of economic prosperity across European regions. We found evidence that the ongoing twin transition will likely undermine cohesion by widening the gap between poorer and richer regions.

How does this finding relate to trends in the development of regional economic cohesion we observed in the past? The evidence so far is mixed. On the one hand, the European Union was dubbed a convergence machine for equalizing economic conditions across regions in a manner unmatched in the world.

This position highlights the overall success of a more integrated Europe than ever. On the other hand, discussions of regions left behind have intensified recently. Worries are that especially left-behind regions will drive inequality and, thus, lead to less overall cohesion in Europe.

To shed light on this debate, we’ve analysed data on the development of economic prosperity in 1182 NUTS-3 regions. In our analysis, we look back to 1993, the first year the economic and monetary union was established. We summarize our results in three key insights on economic convergence since then. 

Insight #1: Economic prosperity increased since 1993 – in every single European region

In 1993, the average level of GDP per capita (in purchasing power standards) in European NUTS-3 regions was 14,439 EUR. This value more than doubled to 29,546 EUR in 2021 (up 105 per cent). But economic prosperity did not rise evenly over this time. Until the financial crisis in 2008/2009, average GDP per capita growth reached as high as 6 per cent per year. Subsequently, the speed of growth slowed and stayed below 4 per cent (except for 2017 and 2021).

Despite a slowdown in economic prosperity growth, the GDP level increased in every European region between 1993 and 2021. However, economic development differed substantially across regions. The best performing regions were Cork (Ireland, plus 723 per cent), Cluj (Romania, plus 569 per cent), Timis (Romania, plus 569 per cent), Salaj (Romania, plus 563 per cent) or Wrocławski (Poland, plus 518 per cent). In general, Eastern European regions performed particularly well: 81 of the 100 best-performing regions are located there.

In contrast, the worst performing regions are Drama (Greece, plus 2 per cent), East Attica (Greece, plus 4 per cent), Viterbo (Italy, plus 6 per cent), Thasos-Kavala (Greece, plus 7 per cent) and Xanthi (Greece, plus 18 per cent). In general, Southern European regions performed particularly poorly: 51 of the 100 worst-performing regions are located there.

Overall, economic prosperity increased for all regions between 1993 and 2021 but not at the same pace.

Insight #2: Regional inequality across regions is decreasing – but slowly

While some regions gained more than others, it is not straightforward whether this led to upward convergence or divergence. For upward convergence, regions with lower levels of economic prosperity in 1993 should have grown more than regions with higher levels of economic prosperity. To put it in macroeconomic terms, poorer regions need to exhibit a higher rate of economic growth to catch up and thus narrow the prosperity gap.

For measuring spatial inequality across regions, the Lorenz curve and the Gini coefficient are commonly applied. The Lorenz curve visually shows the discrepancy between the current distribution of economic prosperity and a situation where every European region exhibits exactly the same level of economic prosperity.

The Gini coefficient quantifies this discrepancy by calculating the area between the Lorenz curve (yellow) and the equality line (blue). The smaller the Gini coefficient, the higher equality, with a value of zero indicating no variance between regions.

 

So, how did inequality in economic prosperity across European regions develop between 1993 and 2021? The Gini index in 1993 was 0.262 but decreased to 0.226 by 2021. This means that economic prosperity is now more equally distributed across European regions than in the past. Hence, economic cohesion has increased over time.

In fact, the Gini index has declined steadily and almost continuously since 1993 in the EU. Only in the aftermath of the financial crisis in 2008/2009 and in 2020, when the Covid-19 pandemic peaked, was a minor increase in inequality observable. Currently, there is no observable change in the trend of declining inequality.

Insight #3: All except Western European regions contributed to more cohesion

When taking a more detailed look at the development of regional inequality across Europe, a more diverse picture emerges. Regions in Northern Europe have become substantially more aligned since 1993. The Gini index for regions in Eastern Europe declined over time, but regional inequality is still the highest in these regions.

Surprisingly, the Gini index for regions in Southern Europe has always been the smallest despite a shift to a higher level of inequality after the financial crisis in 2008/2009. Finally, the Gini index for Western European regions has been relatively unchanged since 1993 but did drop just a little overall.

 

Therefore, the driving forces behind the trend of decreasing inequality are mainly located in Northern and Eastern European regions, which converged over time. Regions in Southern Europe converged somewhat, while regions in Western Europe – home of the old member states – neither significantly improved nor worsened.

Conclusion: Upward convergence in the past, but new challenges for the future

Taken together, all European regions have improved their level of economic prosperity since the establishment of the economic and monetary union in 1993. However, while some regions made substantial leaps ahead, other regions gained very little.

Despite the unequal distribution of gains, inequality in the distribution of economic prosperity at the EU level decreased. Overall, European regions converged upward. One driver for this result is the fast catch-up of some Eastern European regions, which experienced above-average economic growth, especially since EU accession.

In summary, the convergence machine has worked well since 1993. But the question if it will continue to do so, is far from settled. Past development is not the ultimate predictor for the future. Determinants for economic success are complemented by additional key factors like greenhouse gas intensity and internet access relevant for the twin transition.

This shift creates new challenges, especially for regions relying on heavy manufacturing located in Eastern Europe. Particularly those regions which experienced the least gains in the past exhibit the lowest level of digital and green readiness. As our study, The Future of EU Cohesion, shows, this brings the potential to increase disparities across regions.

The ongoing green and digital transition comes not only with far-reaching changes in how our economy works but also brings the potential of new forces of economic divergence. More efforts are required to maintain upward convergence in the future.

This includes targeted support for regions with a poor outlook but also avoiding divergence tendencies in all sorts of policies. Any one-size-fits-all policies entail the danger of firing back on cohesion. Hence, policymakers should avoid implementing policies increasing regional inequality – or, if not avoidable, simultaneously implement measures to compensate regions not benefitting.

Clemens Gerland is currently an intern at Bertelsmann Stiftung. He supports the Europe’s Economy project (September 2022 to February 2023). He studied Economics and Business Economics at Maastricht University.

Thomas Schwab is Project Manager for the Europe’s Future Program at the Bertelsmann Stiftung. He applies a data-driven approach to economic analysis by employing data science and econometric methods.

Read more on European Cohesion

The Future of EU Cohesion: Effects of the Twin Transition on Disparities across European Regions – Event Recording

Mind the Gap – The Twin Transition Threatens to Increase the Urban-Rural Divide in the EU

Digital Transition: New Impetus for Improving Gender Equality in Europe – Global & European Dynamics

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