Economic and Institutional Convergence in Europe (2004–2023): EU Core, New Members, and the Western Balkans

This paper examines economic and institutional convergence between EU Core, EU New, and Western Balkan countries over the period 2004–2023 using a comprehensive panel dataset and multiple convergence frameworks. Evidence of absolute β-convergence is found, although at a slow pace, while conditional specifications show that structural and institutional factors explain growth differences; institutional quality appears to affect growth primarily through direct effects rather than through significant interaction-based β-convergence. A Principal Component Analysis-based Institutional Index (PC1) explains 90% of the variance in institutional quality, highlighting its role in shaping cross-country growth differentials rather than directly influencing convergence speed. Group-specific models reveal heterogeneous convergence paths across European regions. EU Core economies exhibit relatively stable convergence patterns, reflecting their proximity to steady-state income levels. In contrast, EU New and Cohesion Economies do not display statistically significant β-convergence, suggesting that catch-up processes are uneven and not uniformly driven by initial income differences. Western Balkan economies show weak and limited convergence patterns, reflecting persistent structural and institutional constraints. Robustness tests (FE/RE, Hausman, VIF, Breusch–Pagan, residual diagnostics) confirm the validity of the results. Findings suggest an important role of institutional quality in supporting long-term growth and the accession process of the Western Balkans. Policy implications highlight the importance of governance reforms, human capital development, and EU integration mechanisms in accelerating convergence.