Table Of ContentReal Convergence in Central, Eastern and
South-Eastern Europe
Also By Reiner Martin
THE REGIONAL DIMENSION IN EUROPEAN PUBLIC POLICY
Also By Adalbert Winkler
BANKING AND MONETARY POLICY IN EASTERN EUROPE – THE FIRST TEN
YEARS
Real Convergence in
Central, Eastern and
South-Eastern Europe
Edited by
Reiner Martin
and
Adalbert Winkler
Selection and editorial matter © Reiner Martin and Adalbert Winkler 2009
Individual chapters © Contributors 2009
Softcover reprint of the hardcover 1st edition 2009 978-0-230-22018-8
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First published 2009 by
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ISBN 978-1-349-30573-5 ISBN 978-0-230-23543-4 (eBook)
DOI 10.1057/9780230235434
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10 9 8 7 6 5 4 3 2 1
18 17 16 15 14 13 12 11 10 09
Contents
List of Illustrations viii
Acknowledgements xi
Notes on Contributors xii
Introduction 1
1 Real Convergence in Central, Eastern and
South-Eastern Europe: A Central Banker’s View 11
Lorenzo Bini Smaghi
1.1 Introduction 11
1.2 Real convergence in Central, Eastern and
South-Eastern Europe – where do we stand? 12
1.3 Convergence in Central, Eastern and
South-Eastern Europe – theory and evidence 12
1.4 Conclusions 17
2 Fast, but Sustainable? Challenges and Policy Options for
the Catching-up Process of Central and
Eastern European Countries 21
Jürgen Stark
2.1 Introduction 21
2.2 P ossible lessons to be drawn from
former cohesion countries 22
2.3 Current macroeconomic and financial challenges 22
2.4 Policy options 25
2.5 Conclusions 26
3 Real Convergence in Central, Eastern and
South-Eastern Europe: A Production Function Approach 27
Magdalena Morgese Borys,
Éva Katalin Polgár and Andrei Zlate
3.1 Introduction 27
3.2 Patterns of real convergence 28
3.3 Labour markets 41
3.4 Capital accumulation 46
3.5 Conclusions 56
v
vi Contents
4 The Link between Real and Nominal Convergence:
The Case of the New EU Member States 65
Sarah Lein, Miguel Leon-Ledesma and Carolin Nerlich
4.1 Introduction 65
4.2 Real convergence: Stylised facts and prospects 67
4.3 Potential channels of real convergence
affecting price levels 70
4.4 Conclusions 87
Summary of discussion at 2007 ECB
Economic Conference on Central, Eastern and
South-Eastern Europe 94
5 Growth and Economic Policy:
Are There Speed Limits to Real Convergence? 98
István P. Székely and Max Watson
5.1 Introduction 98
5.2 The convergence process 99
5.3 Theoretical foundations and empirical evidence 104
5.4 Challenges for policy 112
5.5 Conclusion 116
Summary of discussion at 2007 ECB
Economic Conference on Central, Eastern and
South-Eastern Europe 121
6 The Impact of Real Convergence on
Migration and Labour Markets 124
Herbert Brücker
Abstract 124
6.1 Introduction 125
6.2 Migration developments in the course of
the EU’s eastern enlargement 127
6.3 Does real convergence affect potential migration? 135
6.4 Outline of the simulation model 138
6.5 A simulation of the migration impact on
real convergence 140
6.6 Conclusions 149
6.7 Appendix 152
Summary of discussion at 2007 ECB
Economic Conference on Central, Eastern and
South-Eastern Europe 161
Contents vii
7 Real Convergence and the Balance of Payments 166
Angana Banerji and Juha Kähkönen
7.1 Introduction 166
7.2 What are the facts? 167
7.3 Is Europe different? Yes, in several respects 175
7.4 Is Europe different? Perhaps, but it is still vulnerable 181
7.5 Policy challenges 187
Summary of discussion at 2007 ECB
Economic Conference on Central, Eastern and
South-Eastern Europe 193
Index 199
Illustrations
Tables
0.1 The global convergence process: Increase in
GDP-PPP per capita 4
3.1 Real GDP growth rates 30
3.2 Real convergence, GDP per capita (GGDC) 33
3.3 Real convergence, GDP per capita (WIIW) 34
3.4 S elected labour market indicators 42
3.5 E mployment shares by broad economic sectors 43
3.6 U nemployment rates by the level of education
attained (2006) and by the type of unemployment
(2005) 45
3.7 Investment-to-GDP ratios and investment shares by sectors 48
3.8 Net FDI inflows 50
3.9 T otal public expenditures on education and R&D 53
3.10 EBRD’s transition indicators (2007) and
WB’s governance indicators (2005) 54
4.1 Selected studies on the Balassa-Samuelson effect in
the EU-9 countries 73
6.1 Residents from the NMS-8 in the EU-15 and
the EEA, 2000–07 130
6.2 Residents from Bulgaria and Romania in
the EU-15 and the EEA, 2000–07 132
6.3 The impact of real convergence on
migration from the NMS 137
6.4 T he migration impact under flexible and
semi-rigid labour markets 143
6.5 The migration impact with capital stock adjustment 144
6.6 I mpact of migration in economies with
regional disparities 146
6.7 The migration impact on the enlarged EU in
the short- and long-run 148
6.8 Assumptions of the simulation model 158
7.1 Average contributions to growth, 2000–06 168
7.2 Share of foreign direct investment in
tradeables in emerging Europe 173
viii
Illustrations ix
7.3 Vulnerability indicators, 1999–2006 174
7.4 Total factor productivity, 2000–2004 179
7.5 Foreign direct investment flows,
billions of US dollars, 2003 180
7.6 International bond issues, 2006 186
Figures
3.1 Structural reforms and economic growth 31
3.2 Absolute convergence 36
3.3 Labour productivity and labour utilisation
relative to the EU-15 countries 38
3.4 C ontributions of TFP, capital and labour to GDP growth 40
3.5 EBRD transition indicators and net FDI flows as a
percentage of GDP 51
4.1 GDP per capita in the EU-9 68
4.2 D ifferent scenarios of catching-up in real income 69
4.3 P rice levels in the EU-9 69
4.4 GDP per capita and price levels in
the EU countries (Average 2000–06) 70
4.5 Consumption of services relative to goods and
GDP per capita (PPP) 76
4.6 D eviation coefficient in the EU-9 relative to Germany (2006) 77
4.7 D evelopment of the deviation coefficients
over time in the EU-9 (1996–2006) 78
4.8 E nergy intensity in the EU-9 80
4.9 Volatility of industrial production and
HICP inflation in the EU-9 (1998–2007) 83
4.10 Credit to the private sector and real convergence in
EU countries (2007) 85
4.11 R eal convergence and openness in the EU-9 (1995–2007) 86
5.1 Catch-up within Europe and convergence among EU-10 100
5.2 Catch-up within Europe 100
5.3 RAMS: Educational attainment and change in
export unit value, 1999–2004 101
5.4 RAMS: Share of agricultural employment in 2006 101
5.5 RAMS: Employment ratios in 2006 102
5.6 RAMS: Current account deficit, 2004–06 102
5.7 RAMS: Real effective exchange rate indices, 2006 103
5.8 RAMS: Change in export unit value and
real appreciation, 1999–2004 103
