Is the Eurozone disintegrating? I am very happy to share with you that our paper on macroeconomic divergence and structural polarisation in the Eurozone has been published in the Cambridge Journal of Economics (open-access):
academic.oup.com/cje/advance-ar…
Here is a summary thread /1:
academic.oup.com/cje/advance-ar…
Here is a summary thread /1:
As a starting point, a clear core-periphery pattern emerges from the data on GDP per capita, unemployment and current account balances, but there is still a remarkable degree of heterogeneity in country performances since the inception of the Eurozone /2 
Our paper tries to make sense of these patterns by studying the mechanisms underlying macroeconomic development in the Eurozone: we combine the demand perspective of the growth model literature with supply-side considerations. /3
We explore the hypothesis that to follow an export-led growth model, the firms in a country must possess a certain degree of technological capabilities. Countries in which firms do not possess required level of capabilities have a higher propensity to develop debt-led growth. /4
We show that the capabilities to export complex products are distributed very unequally among Eurozone countries. /5
If the path to macroeconomic success heavily relies on the production of very complex products, while the capabilities to produce such products are distributed unevenly, not all Eurozone countries will manage to take a path of upward convergence. /6
Countries with a more favourable starting point in terms of technological capabilities when the Euro was established have gained further structural advantages, while relative laggards tend to lose further. Kaldor was broadly right: „success breeds success, failure begets failure“
Core countries are fragmented: some countries are able to further improve their leading technological positions, others struggle to replicate their earlier success. Differences in institutional embedding across core countries affect their development /8
Considering the central role of technological capabilities for the assessment of future economic developments, our results on the unequal distribution of these capabilities suggest that one cannot expect a natural convergence process to materialise in the Eurozone. /9
Pushing for convergence requires the implementation of industrial policies aiming at technological catching-up in periphery countries in combination with public investment and progressive redistributional policies to sustain adequate levels of aggregate demand. /end
