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Evaluating Economic
Performance after Twenty Years
of Transition in Central and
Eastern Europe
Andrew Harrison
Teesside University Business School
1. Introduction
• The paper focuses mainly on the 10 CEE countries
that are EU members
• Main performance indicator used: economic growth,
but productivity underpins sustained economic
growth
• The paper draws on growth theory, institutional
economics, varieties of capitalism and statistical data
2. Evaluating Economic Performance
• Macroeconomic performance is not the only
measure of success of the transition process
• Nor is transition a purely economic process
• But without economic growth, long-term
improvements in living standards are impossible
2.1 Economic Growth in the CEE
Countries
• Early years of transition brought negative economic
growth
- lowest point around 1993 in fast-reform countries
- lowest point around 1998 in slow-reform countries
• Comparison of positive effects of economic reform
cannot therefore be made until the end of the 1990s
Table 1: GDP Growth Rates, 2000-08
Country
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
Romania
Russia
Slovakia
Slovenia
Average Annual Growth Rate
(%)
5.59
4.26
4.20
7.03
3.52
7.29
6.97
4.19
5.88
6.89
5.68
4.33
2.1 Economic Growth in the CEE Countries
• Comparison of raw growth rates is problematic:
- countries with a more difficult transition or where reforms started later
grew faster in the 2000s
- countries grow faster during a ‘catch-up’ phase provided they adopt
reforms (consistent with growth theory)
• Difficult to distinguish between ‘good’ and ‘bad’ performers –
all performed reasonably well
• Broadly consistent with EBRD transition indicators
• Even allowing for negative growth in the 1990s, CEE
economies have also achieved remarkable GDP per capita
growth rates
Table 2: GDP p.c. Growth Rates, 1990-08
Country
Bulgaria
Croatia
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
Romania
Russia
Slovakia
Slovenia
Average Annual GDP Per
Capita Growth Rate (%)
2.7
3.0
2.5
5.1
3.3
4.9
3.4
4.4
2.7
1.7
3.7
3.6
2.2 The Role of Productivity in Economic Growth
• Economic growth can be achieved in two ways:
- by increasing inputs
- by increasing productivity
• When resources are underutilised, output can be increased
relatively easily (output per worker)
• Sustained economic growth requires real improvements in
productivity (output per labour hour and TFP)
• Technological development plays a key role in most growth
theories [Solow (1956), Romer (1990)]
• Productivity is also affected by human capital, institutions etc.
2.2 The Role of Productivity in Economic Growth
• Total factor productivity increased at a similar rate in all main
groups of CEE transition countries from 1999-2005 (World
Bank, 2008) – but from different bases
• Globalisation is responsible for some of the productivity
improvements
• In theory, all economies could eventually converge around the
same rate of economic growth in an open global economy
2.3 Institutions and Economic Performance
• Institutions play an important role in shaping economic
growth, but the precise relationship is elusive
• History, geography, politics, culture and economic philosophy
create unique institutions in each country
• Particular institutions are thought to be important, e.g. World
Economic Forum Global Competitiveness Report 2010-2011:
‘the legal and administrative framework within which individuals, firms,
and governments interact to generate income and wealth in the economy’
Institutions and GDP Per Capita Growth Rates in the
CEE-10, Croatia and Russia
2.4 Economic Performance and the Local Context
• Rodrik (2009):
‘There is increasing recognition in the economics literature that highquality institutions can take a multitude of forms and that economic
convergence need not necessarily entail convergence in institutional
forms’
• Policy checklists (e.g. Washington consensus) should be seen
as a guide rather than a definitive set of policies
• This view is consistent with the literature on ‘varieties of
capitalism’ [Hall and Soskice (2001), Amable (2001)]
• There may be one or more variants of capitalism among the
CEE countries – so no unique policy prescription
3. Conclusion
• At a macroeconomic level, the EU-10 and a number of other
transition countries have made significant progress
• Country comparisons of GDP or GDP per capita growth rates
provide inconclusive evidence of superior or inferior
economic performance
• Economic growth rates are still important indicators, but
growth depends on productivity, institutions and other factors
• Some evidence to suggest a positive relationship between
quality of institutions and economic growth
• Institutions are important for sustained economic growth, but
there is not necessarily a unique ‘right’ set of institutions
Thank you