European common stochastic long-run trends

The paper examines convergence on the European level by using production fu nctions which include capital and labor as factors of production. The metho dology is based on principal-components analysis of common trends appropria te for heterogeneous panels. Using data for the 1960-1997 period and altern ative specifications, it is found that convergence can be decisively reject ed, although the number of common trends is relatively low (about four or f ive).