Macroeconomic Constraints on Convergence in Small Open Economies: The Case of Bulgaria

Aleksandar Radostinov Ivanov

doi:10.36948/ijfmr.2025.v07i06.64097

Macroeconomic Constraints on Convergence in Small Open Economies: The Case of Bulgaria

Author(s)	Aleksandar Radostinov Ivanov
Country	Bulgaria
Abstract	Despite more than two decades of macroeconomic stability and European Union membership, Bulgaria continues to display one of the lowest income levels in the EU, with GDP per capita in purchasing power standards remaining well below the Union average. This paper addresses the puzzle of slow economic convergence despite sustained nominal stability. It argues that Bulgaria’s convergence path is constrained not by a single structural weakness, but by the interaction of several mutually reinforcing factors. The central thesis is that the country’s currency board regime, while successful in delivering price stability and fiscal discipline, has shifted economic adjustment toward domestic channels-wages, employment, and labor mobility. In an integrated European labor market, this adjustment has coincided with significant human capital outflows, particularly among younger and skilled cohorts. At the same time, persistent demographic decline and population aging have reduced labor supply and weakened long-run growth potential. Using comparative descriptive statistics, literature synthesis, and a mechanism-based analytical framework, the paper shows how these elements combine into a self-reinforcing “convergence constraint” that limits Bulgaria’s catch-up process relative to peer economies. By integrating macroeconomic regime choice, labor-market adjustment, migration dynamics, and demography, the paper contributes a unified analytical perspective relevant not only to Bulgaria, but to other small open economies pursuing convergence under strong nominal anchors. The paper contributes by framing slow convergence as an interaction effect rather than a single-policy failure, highlighting migration and demography as internal adjustment channels under hard pegs.
Keywords	Economic convergence, Currency board, Small open economies, Labor mobility, Human capital outflows, Demographic decline, Internal devaluation, Productivity growth, Bulgaria, European Union
Field	Sociology > Economics
Published In	Volume 7, Issue 6, November-December 2025
Published On	2025-12-21
DOI	https://doi.org/10.36948/ijfmr.2025.v07i06.64097

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Macroeconomic Constraints on Convergence in Small Open Economies: The Case of Bulgaria

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