Convergence of GDP and consumption growth across eurozone countries is similar to that across US states

Twenty years after the advent of the euro, the growth rates of GDP and, to a lesser extent, consumption growth, among 10 of the original members of the monetary union (all but Greece and Ireland) have become synchronized to a degree similar to those across the U.S. states, Jean Imbs and Laurent Pauwels of the European Central Bank find. The authors attribute this convergence in growth rates to increases in bilateral “export intensity”—the proportion of a sector’s value chain that is directed towards exports—across the countries. In particular, they find that export intensity, which is much higher between European countries than between Europe and the U.S. or China, can explain up to 20 percent of the increase in GDP growth correlation during this period, and that it played a larger role in the service sector than in manufacturing. Because of Ireland and Greece, though, there is still more heterogeneity in GDP growth rates among all eurozone countries than among U.S. states. The authors argue that the convergence of consumption growth rates across EMU countries can partially be traced to financial deregulation, which facilitated more financial integration.