Convergence Clubs, Institutional Hierarchy, and Crisis Asymmetry in European Economies

This paper investigates the existence of convergence clubs and asymmetric crisis dynamics across European Union and Western Balkan economies over the period 2004–2023. Using the Phillips–Sul log-t methodology, we reject overall income convergence and identify three distinct convergence clubs characterized by persistent structural heterogeneity. A multinomial logit framework reveals that institutional quality emerges as the strongest predictor of convergence club membership, indicating a clear governance hierarchy across European economies. We further estimate fixed-effects growth models with crisis interactions to examine asymmetric responses during major macroeconomic shocks (2008–2009, 2012–2013, and 2020–2021). Results indicate significant negative crisis effects, with middle-income club economies experiencing disproportionate contraction. These findings remain robust to Driscoll–Kraay corrections for cross-sectional dependence, alternative crisis definitions, and sigma-convergence analysis. Overall, the results suggest that European income dynamics are characterized not by uniform convergence, but by club-based adjustment patterns associated with institutional capacity and crisis resilience. The findings contribute to the literature on nonlinear convergence and institutional heterogeneity in integrated economic areas.