Changing development prospects for the Central and Eastern European EU member states

Farkas, Beáta (2013): Changing development prospects for the Central and Eastern European EU member states.

Abstract

One of the fundamental goals of European integration is to provide less-developed member states opportunities for convergence and strengthen economic and social cohesion. Before the crisis the convergence process was impressive in the new member states. This success raises the question of how the institutions of the new EU member states match the institution types previously worked out for the old member states, and whether they resemble any of the broadly accepted four models of capitalism (Anglo-Saxon, Nordic, Continental European and Mediterranean) or represent a new type of model. Empirical analysis suggests that an independent Central and Eastern European model is eligible for existence. The characteristics of the model may be derived from three main factors: the lack of capital, weak civil society and the impact of the European Union and other international organisations influencing the new member states.

FDI inflow could help to reduce the lack of capital. The success of convergence can be explained through the reconfiguration of the value chain after the collapse of communism by companies located in Continental and Northern Europe. These companies located their assembly activities in Central and Eastern Europe, and these countries could integrate not only within the EU but also within the world economy through increased investment and productivity. Although this convergence model has its limits, it provided sufficient space for the Central and Eastern European countries to develop, due to their low initial GDP levels.

During the crisis the convergence has slowed down. The forthcoming period makes some changes in the convergence model necessary. The reduction in the private sector savings-investment gap is unavoidable. Savings must be used more efficiently than in the past. These suggestions are known in literature. However, two other important factors should also be taken into consideration. Failing to bridge the current productivity gap between foreign and domestic companies makes catching-up impossible. Population ageing and increased net migration from the Central and Eastern European countries has reached the level which demolishes their economic potential and destabilizes their societies in the medium and long run. These issues mean severe challenges on both national and European level.

• Item Type: MPRA Paper
• Language: English
• Keywords: Central and Eastern European; convergence; global crisis; varieties of capitalism
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; P - Economic Systems > P1 - Capitalist Systems > P17 - Performance and Prospects

References

Andreosso-O’Callaghan B. – Lenihan, H. (2006): Is Ireland a Role Model for SME Development in the New EU Member States? European Integration, 28 (3) pp. 277-303

Andreosso-O’Callaghan B. – Lenihan, H. (2010): Achieving a ‘sustainable’ industrial base – why do two small open economies perform differently? The cases of Ireland and Sweden. Regional Studies Association Annual International Conference, ‘Regional Responses and Global Shifts: Actors, Institutions and Organisations’, Pécs, Hungary, 24-26 May 2010. http://www.regionalstudies-assoc.ac.uk/events/2010/may-pecs/papers/Callaghan.pdf

Barry, F. – Bergin, A. (2012): Offshoring, Inward Investment and Export Performance in Ireland. ESRI Working Paper No. 430, Economic and Social Research Institute (ESRI), Dublin

Becker, T. – Daianu, D. – Darvas, Zs. – Gligorov, V. – Landesmann, M. – Petrovic, P. – Pisani-Ferry, J. – Rosati, D. – Sapir, A. – Weder Di Mauro, B. (2010): Whither growth in central and eastern Europe? Policy lessons for an integrated Europe. Bruegel Blueprint Series Volume XI, Brussels

Blanke, T. - Hoffmann, J. (2008): Towards a European Social Model: Preconditions, Difficulties and Prospects of a European Social Policy. International Journal of Public Policy, 3 (1/2) 20–38.

Boeri, T. (2002): Social policy: one for all? Paper presented at a CEPII conference on policy competition and the welfare state, The Hague, 29-30 November.

Bohle, D. – Greskovits, B. (2012): Capitalist Diversity on Europe’s Periphery. Ithaca and London: Cornell University Press

Buchen, C. (2007): Estonia and Slovenia as antipodes. In: D. Lane – M. Myant (eds): Varieties of Capitalism in Post-communist Countries. New York: Palgrave Macmillan, pp. 65–89

Cernat, L. (2006): Europeanization, Varieties of Capitalism and Economic Performance in Central and Eastern Europe. New York: Palgrave Macmillan

Csaba, L. (2009): Crisis in Economics? Budapest: Akadémiai Kiadó

Ebbinghaus, B. (1999): Does a European social model exist and can it survive? In: G. Huemer – M. Mesch – F. Traxler (eds): The Role of Employer Associations and Labour Unions in the EMU. Institutional Requirements for European Economic Policies. Aldershot: Ashgate, pp. 1–26

EBRD (2008): Growth in Transition, Transition report 2008. European Bank for Reconstruction and Development, London

Estrin, S. – Kolodko, G.W. – Uvalic, M. (eds) (2007): Transition and Beyond. New York: Palgrave Macmillan

European Commission (2009a): Ageing Report: Economic and budgetary projections for the EU-27 Member States (2008-2060). European Economy, No. 2

European Commission (2009b): Five years of enlarged Europe. European Economy, Nr. 1

European Commission (2010a): Cross-country study. Economic policy challenges in the Baltics. European Economy, Occasional Papers, No. 58

European Commission (2010b): European Competitiveness Report 2010. Brussels, SEC(2010) 1276 final

European Commission (2011): The 2012 Ageing Report: Underlying Assumptions and Projection Methodologies. European Economy, No. 4

Farkas, B. (2011): The Central and Eastern European Model of Capitalism. Post-Communist Economist 23 (1) pp. 15-34

Farkas, B. (2012): The Impact of the Global Economic Crisis in the Old and New Cohesion Member States of the European Union. Public Finance Quarterly 57 (1) pp. 53-70

Farkas, B. (2013): The Crisis as a Turning Point in the European Convergence Model In: Farkas, B. (ed): The Aftermath of the Global Crisis in the European Union. Newcastle upon Tyne: Cambridge Scholars Publishing, pp. 134-151.

Farkas, B. (forthcoming): Weakening cohesion as a security challenge for the European Union In: Visvizi, A. – Stepniewski, T. (eds): Security Dimensions of Central and Eastern Europe. Yearbook of the Institute of East-Central Europe, Volume 11 (2013), Issue 5 Lublin

Feldmann, M. (2007): The origins of varieties of capitalism: lessons from post-socialist transition in Estonia and Slovenia. In: B. Hancké – M. Rhodes – M. Thatcher (eds): Beyond Varieties of 16 Capitalism. Conflicts, Contradictions, and Complementarities in the European Economy. Oxford: Oxford University Press, pp. 328–350

Gill, I. – Raiser, M. (2012): Golden Growth. Restoring the Lustre of the European Economic Model. The World Bank, Washington

Gligorov, V. – Holzner, M. – Landesmann, M. – Leitner, S. – Pindyuk, O. – Vidovic, H. et al. (2012): New Divide(s) in Europe? Wiener Institute für Internationale Wirtschaftsvergleiche, Wien, 2012

Gorodnichenko, Y. – Svejnar, J. – Terrell, K. (2007): When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies. Institute for the Study of Labor (IZA), Bonn, IZA DP No. 3079, September

Halmai, P. – Vásáry, V. (2012): Convergence crisis: economic crisis and convergence in the European Union. International Economics and Economic Policy, Nr. 9

Hancké, B. – Rhodes, M. – Thatcher, M. (eds.) (2007): Beyond Varieties of Capitalism. Conflicts, Contradictions, and Complementarities in the European Economy. Oxford: Oxford University Press

Hanousek, J. – Kočenda, E. – Maurek, M. (2010): Direct and Indirect Effects of FDI in Emerging European Markets: A Survey and Meta-analysis. The William Davidson Institute, University of Michigan, WP No. 976, March 2010

King, L. P. (2007): Central European capitalism in comparative perspective. In: B. Hancké – M. Rhodes – M. Thatcher (eds.): Beyond Varieties of Capitalism. Conflicts, Contradictions, and Complementarities in the European Economy. Oxford: Oxford University Press, pp. 307–327

Knell, M. – Srholec, M. (2007): Diverging pathways in Central and Eastern Europe. In: D. Lane –M. Myant (eds): Varieties of Capitalism in Post-communist Countries. New York: Palgrave Macmillan, pp. 40–62

Lane, D. (2007): Post-state socialism: a diversity of capitalism? In: D. Lane – M. Myant (eds): Varieties of Capitalism in Post-communist Countries. New York: Palgrave Macmillan, pp. 13–39.

Lane, D. – Myant, M. (eds) (2007): Varieties of Capitalism in Post-communist Countries. New York: Palgrave Macmillan.

Mykhnenko, V. (2007): Strengths and weaknesses of ‘weak’ coordination: economic institutions, revealed comparative advantages, and socio-economic performance of mixed market economies in Poland and Ukraine. In: B. Hancké – M. Rhodes – M. Thatcher (eds.): Beyond Varieties of Capitalism. Conflicts, Contradictions, and Complementarities in the European Economy. Oxford: Oxford University Press, pp. 351–378.

Nölke, A. – Vliegenthart, A. (2009): Enlarging the Varieties of Capitalism. The Emergence of Dependent Market Economies in East Central Europe. World Politics, 61 (4) pp. 670–702.

Sapir, A. (2006): Globalization and the Reform of European Social Models. Journal of Common Market Studies, 44 (2) pp. 369–390.

Wymenga, P. – Spanikova, V. – Derbyshire, J. – Barker A. (2011): Are EU SMEs recovering? Annual Report on EU SMEs 2010/2011. Rotterdam, Cambridge: Ecorys