Chapter 4: What are the chances of catching up with the European Union?
4. What are the chances of catching up with the European Union? Andrew M. Warner1 INTRODUCTION AND SUMMARY Whether transition economies eventually catch up to European income levels probably depends both on the economic policies they follow as well as possible natural obstacles to high incomes. In this chapter I examine the following two questions. Based on the best-available evidence as of the end of 1999, is the transition region currently on a path to convergence with the economies of the European Union (EU)? Second, is there evidence that the process is influenced by geographic obstacles to development that we observe in the rest of the world? What does convergence mean in this context? At one level, it is simply the question of whether transition countries or regions are growing faster than the EU region. The answer for the entire transition region as a whole is no. Surprisingly, the data show that the answer even for the Central European sub-region is now no, although it was yes a few years ago. But the answer for particular countries is yes. I show evidence for this in the first part of this chapter (particularly Table 4.5). Transition has led to a U-shaped pattern of GDP over time in many countries. Furthermore, in some countries output is still declining. How should we think of convergence in this context? Obviously, convergence did not happen during the downswing of the U and is not now happening in countries with declining output. This is a trivial...
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