Exploring the Contribution of Financial Sector for the Conditional Beta-Convergence: An analysis of the Eurozone Case

This dissertation explores the impact of financial sector development on the conditional convergence of Eurozone economies to their steady states. We analyse data from twenty Eurozone countries spanning from 1995 to 2019. Using an innovative time-varying β-convergence approach, we find evidence of catch-up growth during the observed period. In the overall panel, the financial system dimensions positively contribute to the convergence process. However, results differ when considering regional convergence clubs and EMU integration dates, influenced by regional dynamics and initial variable levels. Additionally, incorporating sectoral intensity alongside financial variables enhances the model's explanatory power. These variables exhibit statistical significance in explaining economic convergence, thereby bolstering the notion of the financial sector's facilitating role in promoting convergence within the Eurozone. This study provides insights into Eurozone economic convergence, emphasizing the importance of financial sector. Our findings hold implications for policymakers and economists navigating European economic integration, highlighting the pivotal role of the financial system in advancing convergence objectives. Achieving greater economic integration and convergence remains a central goal within the European Union and EMU.