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2021 | OriginalPaper | Buchkapitel

2. Convergence of the EU Member States in Central-Eastern and South Eastern Europe (EU11): A Framework for Convergence Inside a Close Regional Cooperation

verfasst von : István P. Székely, Robert Kuenzel

Erschienen in: Does EU Membership Facilitate Convergence? The Experience of the EU's Eastern Enlargement - Volume I

Verlag: Springer International Publishing

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Abstract

This chapter offers a framework to analyse the impact of EU membership on economic (“means”), institutional (“ways”) and social (“ends”) convergence of EU11 countries to the frontier. It identifies the channels through which this impact works: trade, investment, finance, migration and institutions. Using this framework, the analysis finds that EU membership shaped the convergence process in important ways. EU11 countries as a group were among the fastest converging countries in the world. The main drivers were trade and FDI. However, the finance channel injected volatility into the convergence process. Through the trade, investment and finance channels, EU membership unleashed strong market forces. However, the institutional channel remained weak, and institutional convergence lagged behind economic convergence. Thus, the unleashed market forces also caused negative side effects. Rapid economic convergence did not translate into a commensurate social convergence. Moreover, fast economic convergence also brought about major imbalances and vulnerabilities. Slow social convergence and imbalances in economic convergence may in turn jeopardise the sustainability of the rapid economic convergence the region has achieved so far.

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Vorheriges Kapitel Introduction: The Story and the Lessons

Nächstes Kapitel Towards a New Growth Model in CESEE: Three Challenges Ahead

Nur mit Berechtigung zugänglich

Article 3 of the Treaty on European Union (2012) sets out the aims of the European Union, which explicitly includes the promotion of the well-being of its people, the four freedoms discussed earlier in the Introduction, highly competitive social market economy, social progress, and economic, social and territorial cohesion. As we focus on outcome, we will aim to translate these general goals into measurable indicators in our framework.

Article 3 explicitly mentions this aspect as well when it says: “It shall promote economic, social and territorial cohesion, and solidarity among Member States.”

In short, institutions as defined by North (1991): “Institutions are the humanly devised constraints that structure political, economic and social interactions. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conducts) and formal rules (constitutions, laws, property rights).”

Moreover, several EU candidate countries in the Western Balkan experienced war (e.g., Serbia), stronger negative consequences of war elsewhere (e.g., North Macedonia, Albania) or changing composition and/or boundaries of states (e.g., Montenegro) in the past that may have long lasting impact on their economic and social development.

Székely (2019) uses a broader set of small open economies to define the global frontier, including additional countries from other continents (such as Canada, New Zealand, Australia or Singapore). In almost all respect, these additional countries are very similar to the ones chosen here.

For more details on the trade agreements with the EU, see Sect. 2.4.

The synthetic comparators calculated in Campos et al. (2019) include several countries in these groups. While such synthetic comparators are data driven and thus more objective, they also include countries with which a comparison of economic, institutional and social convergence in EU11 is somewhat difficult to interpret. For example, large resource-based economies, such as Russia. Moreover, using different synthetic comparators for rather similar countries may not appear intuitive for policy makers.

Article 3 of the Treaty on European Union (2012) also explicitly mentions well-being as one of the main aims of the EU: “The Union’s aim is to promote peace, its values and the well-being of its peoples.”

Campos et al. (2019) use a synthetic benchmark country approach and start to account for the positive impact of (future) EU enlargement in 1998. They estimate that in the first 10 years (1998–2008) on average (average over the period and the 8 EU11 countries that joined in 2004) EU accession increased per capita GDP by some 15% (relative to the predicted value for no EU membership). The average gain in the first 5 years is estimated at close to 10%, so the gain is estimated to have increased over time. These estimates are for a period that ends just before the crisis started. Thus, they are strongly influenced by the rapid growth in the Baltic countries. However, the estimates seem to be rather robust to the choice of the synthetic benchmark. These estimated gains are very much in line with what Fig. 2.1 suggests for that period. Figure 2.2 shows why the estimated gain for the Baltic countries are so high, and seem to suggest that in a longer period including the crisis years, a considerable part of these extra gains might have been lost. Estimates for the individual countries vary greatly, but with the exception of Slovakia and Poland, are all double digit.

Albeit using a different concept of convergence and analysing social convergence within the EU, based on a large set of multidimensional socio-economic indicators, Eurofound (2018) also identified a structural break in social convergence following the outbreak of the crisis. Our analysis focuses on the relationship between economic and social convergence to the frontier. What our finding adds to theirs is that following the crisis social convergence of EU11, to the frontier and relative to other groups of countries, seems to have paused while economic convergence continued albeit at a slower pace.

Ridao-Cano and Bodewig (2018) calls the attention to this issue in a broader context and using a different concept of convergence, but pointing to same group of EU countries and regions in Southern Europe. On the regional aspect of EU11 convergence, see Sect. 2.9.

For several countries, the Gini coefficient was not calculated for the years shown in Fig. 2.4. Thus, we used the closest available estimate, or an average of those if they were available on both sides. For this reason, and because of frequent changes over time and differences across estimates in methodology, these numbers should be treated with great caution. They probably give a broad indication of major trends, but certainly not a precise measure of income inequality. For the same reason, any comparison over time and across countries needs to be taken with a pinch of salt.

Eurostat does not publish estimates for Albania, but based on World Bank estimates, the Gini coefficient for Albania is likely to be close to the EU average.

This section and Sect. 2.9 build on Buti and Székely (2019).

For a complete list of trade arrangements that are in place with the EU, see https://ec.europa.eu/trade/policy/countries-and-regions/negotiations-and-agreements/#_in-place

Boldizsár et al. (2021) (the country study on Hungary in this volume) emphasizes the importance of this aspect for Hungary. The share of the automotive industry in total inward FDI in Hungary was above 30%.

For non-tariff barriers (NTBs), estimates are based on those calculated for trade between the EU and the US. The analysis used a multi-country version of the QUEST model.

In an early assessment of the challenges of EU accession, Feldman and Watson (2002) emphasize the importance of sustainability of capital flows and the critical role of the quality of the financial system. They also point to the importance of the quality of macroeconomic policies, monetary and fiscal, and that of the institutions that are conducive to prudent macroeconomic policies.

To help these countries to adjust with less economic and social cost to the reversal of financial capital flows and to limit the reversal to the unavoidable minimum, the Vienna Initiative brought together policy makers, central bankers, supervisors and bankers from the CESEE region and from EU15. It was a joint initiative of the EBRD, the IMF and the European Commission and it promoted concerted policy actions and business strategies to help the countries and banks concerned to manage this difficult process and to safeguard financial stability. This was a good example of the EU working with other regional and global anchoring institutions in a particular area. For more information on the Vienna Initiative, see http://vienna-initiative.com/

Calligaris et al. (2016) analysed allocative efficiency in the Italian enterprise sector and found that the extent of misallocation had substantially increased since 1995, and that this increase could account for a large fraction of the Italian productivity slowdown since then. While they use a broader concept of allocative efficiency and look into the overall efficiency of resource allocation in the enterprise sector, their finding points to the same direction.

Following a banking crisis and a subsequent recapitalization of a large part of the banking system by the state in 2013, all the recapitalized banks have been privatized or wound up.

Since then, following the crisis, recapitalized banks have been privatized or wound down.

An empirical analysis by Temesváry and Banai (2017) covering also post-crisis years (2002–2013) provides empirical evidence for a fundamental change in foreign banks’ lending behaviour. They also find that the Vienna Initiative helped to smooth adjustment in bank lending in the region.

A Roadmap towards a Banking Union was issued in September 2012 (European Commission 2012).

For detailed information on the Banking Union, see European Commission (2019a).

In the southern EU enlargement waves of 1981 and 1986, upon entry, the share of Spanish nationals living in the (then) EU was, 1.5% of resident population of Spain, similar to the average level in EU11. The same ratio for Greece was 3.7% in 1985, the first year for which observation is available, and for Portugal, it was 8.8%. But unlike in EU11, following EU accession these shares changed little until the recent crisis, when they started to increase, albeit much less than in most EU11 countries. Similarly to EU11, the distribution among receiving countries was highly uneven, close to 80% of Spanish nationals stayed in France and Germany, the same share of Greeks in Germany, and slightly higher share of Portuguese in France (all data are from the OECD International Migration Database). The population of these countries didn’t decline following EU accession, as it did in EU11 (Figure 2.17).

For an explanation of the chart, see the Notes to the chart.

The relatively high stock for Croatia, which is still below the global trend, is related to the Yugoslav war.

The latest estimate in Clemens (2014) is for 2010. The global curve moved up continuously every decade since 1960, so the global curve for 2017 would in all likelihood be above the one for 2010.

Schönfelder and Wagner (2015), based on an econometric analysis of these indicators, go a step further and conclude that EU membership after accession has no impact on institutional quality, as measured by WDI. Based on an econometric model to explain the development of the EBRD transition indicators, Staehr (2011) finds that already the start of the EU membership negotiations had a negative effect on reforms.

A comparison of the numbers for 2010 and 2017 of the European Quality of Government Index also shows a rapid deterioration in institutional quality in EU S4 relative to EU11, and relative to the EU Frontier.

The analysis in Tóth and Hajdu (2021) (Chap. 12 in Volume II) provides micro-level empirical evidence for the weakening of corruption control in public procurement in EU S4 countries. Schönfelder and Wagner (2015) present econometric evidence to suggest more broadly that euro introduction led to a deterioration in the WDI for control of corruption, possibly capturing the developments in these countries.

As Table 5 in Annex C in Durán and Szabo (2021) show, in EU11, the share of FDI in regional GDP in the regions that benefit the most from FDI in a country (with the exception of Hungary this is the region where the capital is) is 3½ to 17 times higher than the same share in the regions that benefits least. The highest (double-digit) ratios are in Poland and Romania, the lowest ones in Slovenia and Bulgaria.

Ridao-Cano and Bodewig (2018) calls the attention to this issue for the EU as a whole, particularly concerning Southern Europe. Pilati (2019) argues that the “fourth industrial revolution” will further exacerbate already strong agglomeration effects in Europe, and argues for a geographically fair EU industrial strategy, and for policies that can break agglomeration bubbles. As the former analysis shows, for this policies to work, regional institutions need to be strengthened first.

Tóth and Hajdu (2021) describe a very important aspect of allocation of EU funds, control of corruption risk in public procurement.

The econometric analysis in Rodríguez-Pose and Ganau (2019) shows that the quality of regional institutions improve productivity both directly and indirectly through increasing the return to physical and human capital and local innovative capacity.

This applies not only to the average quality of regional institutions, but also to the dispersion in quality among regions within a country. As the European Quality of Government Index shows, the dispersion in institutional quality among regions is much higher in EU11 then in EU15 countries, except EU S4. For the latter, this is an important factor that contributed to the decline in relative income in the past decades.

The European Pillar of Social Rights expresses principles and rights essential for fair and well-functioning labour markets and welfare systems in twenty-first century Europe. It reaffirms some of the rights already present in the Union acquis. It adds new principles that address the challenges arising from societal, technological and economic developments. For more information, see European Commission (2019b).

Campos et al. (2019) estimate the contributions of the different factors to the gain from EU accession, including in the sample countries that joined the EU in the previous waves of enlargement. They confirm that the biggest gain is from trade openness followed by financial integration and the introduction of the euro, for a period that ends in 2008. As our analysis in Sect. 2.6 suggests, these estimates may overstate the impact of the finance channel as the period ends just before the crisis.

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Titel: Convergence of the EU Member States in Central-Eastern and South Eastern Europe (EU11): A Framework for Convergence Inside a Close Regional Cooperation
verfasst von: István P. Székely
Robert Kuenzel
Verlag: Springer International Publishing
Buch: Does EU Membership Facilitate Convergence? The Experience of the EU's Eastern Enlargement - Volume I
Print ISBN: 978-3-030-57685-1

Electronic ISBN: 978-3-030-57686-8

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-57686-8_2

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