We use the international comparison data of Summers and Heston to trace the development of three regions in Western Europe: the countries currently outside the European Union (EEC), the EEC Center, and the EEC Periphery (Greece, Ireland, Portugal, and Spain). For each year during the period 1950-1990, the per capita gross domestic products of these regions decrease in this order, but the development over time shows a rapid increase of all three regions as well as a mutual convergence, the inequality of the regions and their constituent countries declining substantially.
Key Words: convergence, GDP, inequality, purchasing power parity, Western Europe, World Penn Tables
The data of the International Comparison Project, based on purchasing power parities, enable the analyst to compare systematically the gross domestic products (GDPs) of different countries and regions over time. The objective of the present article is to illustrate this for Western Europe (i.e., non-Communist Europe) in the period 1950-1990. There are 18 countries constituting Western Europe, which we divide into three regions. One is non-European Union (non-EEC), which consists of six countries: Austria, Finland, Iceland, Norway, Sweden, and Switzerland. Another is the EEC Center, which consists of eight countries: Belgium, Denmark, France, Germany (West), Italy, Luxembourg, Netherlands, and the United Kingdom. The third is the EEC Periphery, which consists of four countries: Greece, Ireland, Portugal, and Spain.
Columns 2-5 of Table 1 show the per capita GDPs of Western Europe and its three regions. These figures are obtained by weighting the per capita GDPs of the constituent countries proportionally to their populations. The figures in column 2 indicate that Western Europe's per capita GDP increased almost uninterruptedly from $3,700 in 1950 to $12,750 in 1990, or almost 250%. The next three columns show the differences between the three regions. In each year, the per capita GDP of non-EEC exceeded that of the EEC Center (columns 3 and 4), but the percentage difference declined from almost 18% in 1950 to 8% in 1990. Similarly, the figures for the EEC Periphery are lower, and indeed much lower, than those for the EEC Center in the same year. It took the Periphery until the mid-1960s to reach a per capita GDP equal to that of the Center in 1950 and until 1990 to reach the level that the Center reached in 1970. Nevertheless, here too we find convergence: in the early 1950s, the Periphery's per capita GDP was well below 50% of that of the Center, but in 1990 it was well above 60%.
The other columns of Table 1 pursue the matter of convergence more systematically. As a measure of the inequality among the per capita GDPs, we use the logarithm of the ratio of arithmetic mean income (mean GDP) to geometric mean income. When this measure is applied to the 18 countries of Western Europe, it can be written as
where P^sub i^ is the population share and Y^sub i^ the income share of country i. The result is shown in column 6 and indicates a substantial decrease in inequality, from 0.068 in 1950 to 0.018 in 1990.
Given that we introduced three regions, it is appropriate that we apply the inequality measure at the regional level. …