Established economics teaches us that for economic gaps to be bridged, a process of convergence sets in that was described by Bela Balassa and Paul Samuelson, independently from each other, more than 4 decades ago, and which is called ever since the “Balassa-Samuelson effect”. But a reversal of what was once known as the Balassa/Samuelson effect has set in, with falling prices of non-tradables in the highly developed European center countries.
Our macro-quantitative calculations show that considering other important intervening factors, like development levels and human capital formation, the ultraliberal thinking inherent in the recent “Bolkestein directive” that should lead to a considerable lowering of price levels in the formerly “non-tradable” sectors of services in Europe would be certainly compatible with some aspects of growth and better employment (and thus also gender relations), but our three main other indicators of globalization, i.e. high foreign saving, “economic freedom” and high MNC penetration ratios, are still very systematically linked with severe deficits in the social sphere, whatever the research design chosen. And in addition, powerful forces of agglomeration propel Europe in the direction of further regional income concentration and inequality, thus blocking the hopes of the poorer segments of the East European new member countries. A process of catching up development seems under these conditions a very remote hope indeed.
JEL Classification: C21, D31, E30, F02
Key words: Cross-Section Models, Income Distribution, Prices, Business Fluctuations, and Cycles – General; International Economic Order, Inequality, Economic Integration: General
