New Directions in Theory and Policy
Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie
Chapter 13: Economic Growth and Beta-Convergence in the East European Transition Economies
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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