Table of Contents

Post-Crisis Growth and Integration in Europe

Post-Crisis Growth and Integration in Europe

Catching-up Strategies in CESEE Economies

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

Against the backdrop of the financial crisis that unfolded in 2008, this book deals with policy challenges going forward, focusing in particular on the ongoing catching-up process in Central, Eastern and South-Eastern European countries.

Chapter 6: Neoclassicism in the Balkans

Vladimir Gligorov

Subjects: economics and finance, financial economics and regulation

Extract

Vladimir Gligorov European post-socialist transition has followed the neoclassical strategy of growth, the key proposition of which is that an open economy supports the catching-up process of growth by attracting foreign investments. From a policy point of view, this strategy comes in two versions: one strategy calls for implementing whatever policies support foreign investments, and the other strategy postulates that policies need to make sure that FDIdriven growth is sustainable. In practice, policy-makers have typically applied a broad mixture rather than one or the other strategy for growth. In a stylized form, however, it can be argued that the Balkan economies and policy makers have neglected the sustainability aspect of the neoclassical model of growth. As a consequence, disequilibria have developed that have made them extremely vulnerable to external shocks, as became evident in the crisis that emerged in 2008. That has put the whole process of transition to the test. In this chapter, the neoclassical model of transition will be briefly described; the development of macroeconomic disequilibria will be reviewed; the effects of the crisis will be set out; and the risks and the prospects that the region is facing will be commented on. GROWTH AND SUSTAINABILITY If a small, developing economy liberalizes, that is, adopts a free trade regime and allows cross-border financing (with or without certain restrictions), foreign investments should flow into that economy, driven by a higher marginal productivity of capital in that economy. Whether this happens in practice clearly depends on the underlying risks of...

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