Economic Growth

Economic Growth

New Directions in Theory and Policy

Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie

This enlightening and significant volume focuses on the nature, causes and features of economic growth across a wide range of countries and regions. Covering a variety of growth related topics – from theoretical analyses of economic growth in general to empirical analyses of growth in the OECD, transition economies and developing economies – the distinguished cast of contributors addresses some of the most important contemporary issues and developments in the field.

Chapter 13: Economic Growth and Beta-Convergence in the East European Transition Economies

Nigel F.B. Allington and John S.L. McCombie

Subjects: economics and finance, post-keynesian economics


Nigel F.B. Allington and John S.L. McCombie INTRODUCTION The European Union (EU15)1 admitted ten new members in May 2004. These included eight former communist states, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia, and Slovakia (the eight Transition Economies – TE8), together with Cyprus and Malta (EU25). Bulgaria and Romania are to join in 2007 or more likely in 2008, following ratification of their accession treaties by the EU15. The new members have no euro derogation as no opt-out is available to them (unlike the UK and Denmark) and several have signalled that they would like to join the Euro Area (EU12)2 as soon as possible. This would take a minimum of two years if they joined the Exchange Rate Mechanism II (ERMII) at their accession and subsequently met the other Maastricht nominal convergence criteria over that period. Membership of ERMII is regarded as important for anchoring their exchange rates and expectations about inflation as well as imposing fiscal discipline. Estonia, Lithuania, and Slovenia joined ERMII in June 2004 and Slovenia is expected to become the first to join the euro on 1 January 2007. The purpose of this chapter is to examine the question as to whether the Transition Economies have exhibited any recent evidence of catching up with the EU15 countries in terms of productivity over the period 1994 to 2002. This is accomplished by estimating a number of specifications of the neoclassical beta-convergence growth model. An alternative measure of convergence, sigma-convergence, which...

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