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EUROPEAN ECONOMIC CONVERGENCE: WHEN WE WILL CLOSE THE GAP? (CASE OF LITHUANIA)

Indre Bagdonaite, L. Cekanavicius

Abstract

The purpose of this study was to estimate Lithuania’s and EU-15 countries group real GDP per capita growth rates and to evaluate possible convergence scenarios. The real GDP per capita (in purchasing power standards) data for EU-15 and Lithuania for a period of 2005-2016 were employed to establish comparative average annual GDP per capita growth rates. Three possible convergence scenarios were analyzed: “As it Were”, i.e. if the average annual growth rates remain at the current levels, “Speeding Up”, i.e. if the catch-up to EU-15 pace was faster, and “Catch-up in 20 years”, i.e. what average annual real GDP per capita growth rates are requisite in order to converge with EU-15 average in 20 years. Econometric simulations of the assumed scenarios, based on Holt - Winters exponential smoothing (no seasonal) test and ARIMA (autoregressive integrated moving average process) model were performed. Simulation results indicated that it can being expected that Lithuania’s real GDP per capita might converge to EU-15 average within 30 years if its average growth rate will continue to exceed EU-15 growth rate by 0.04% (as it was the case for the last decade), and if Lithuania wanted to fill in the gap faster, for example, after 20 years, it would have to increase its currently observed average growth rate by approximately 0.034 percentage points.

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