Munich Personal RePEc Archive

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.

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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.

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