Income convergence clubs in the Eurozone: a tale beyond the core/periphery divide

Purpose This paper aims to examine income convergence among the Euro members from 1995 to 2021. Design/methodology/approach This study uses Phillips and Sul’s test (2007, 2009) extended by Lyncker and Thoennessen’s (2017) algorithm jointly with <m:math xmlns:m="http://www.w3.org/1998/Math/MathML" display="inline"><m:mi>β</m:mi></m:math> and <m:math xmlns:m="http://www.w3.org/1998/Math/MathML" display="inline"><m:mi>σ</m:mi><m:mi> </m:mi></m:math> – convergence analysis and a traditional growth equation. Findings This analysis identifies three clubs of countries in terms of gross domestic product (GDP) per capita with notable disparities between and within them, which implies that the theory of optimal currency areas has not been fulfilled. Originality/value These results rule out the core/periphery divide as presented in the literature to date. Finally, by estimating an endogenous economic growth model, this study finds the primary factors underpinning the differences between the three stationary states: labor productivity, physical and human capital, investment and international trade.