Current report aims to identify major existing gaps in the four socio-economic dimensions (economic, human, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina, Michael Tokmazishvili
Published in 2007
The report aims to identify major existing gaps in the five socio-economic dimensions (economic, human, openness, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Aziz Atamanov, Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Lukashova, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina
Published in 2008
Michael Tokmazishvili
Until the early 1990s, the discussions on fiscal policy primarily centered on the functions of economic stabilization, income redistribution and resource allocation. Long-term growth was not usually viewed as an end itself, and fiscal policy was often not sufficiently tailored to the different circumstances and priorities of countries at different stages of development. It is only relatively recently that the discussion has gradually focused on the links between different dimensions of quality of public finances and economic growth.
Based on the conceptual framework for linking the quality of public finances and economic growth that has been developed by the European Commission and applied to the EU Member States, this study examines the conditions under which the budgetary policy, and more specifically expenditure, revenue and financing design would be supportive of growth in the Mediterranean partner countries of the European Union. The study also highlights some of the interlinkages between fiscal policy and growth and summarises empirical findings found in the literature with particular focus on Mediterranean partner countries of the European Union.
The study concludes by highlighting possible areas in the planning and execution of fiscal policy and governance where growth enhancing interventions can be applied.
Authored by: Leonor Coutinho, Luc De Wulf, Santiago Florez, Cyrus Sassanpour
Published in 2010
The paper builds predictive scenarios for the agricultural sector of eleven Mediterranean countries (Med 11), namely Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and Turkey. First, it assesses the performance trends of the Med 11 agricultural sector with a focus on production, consumption and trade patterns, incentives, trade protection policies and trade relations with the EU and productivity dynamics and their determinants. Secondly, it presents four scenarios based on the main value chains of the agriculture sector of Med 11: animal products, fruits and vegetables, sugar and edible oil, cereals and fish and other sea products. The four scenarios are: business as usual, Mediterranean One global Player, the Euro Mediterranean Area under threat and the EU and Med 11 as Regional Player.
Written by Saad Belghazi. Published in August 2012.
PDF available on our website at: http://www.case-research.eu/en/node/57764
Labour migration does not appear to have the same magnitude and socio-economic importance in Belarus as in other EaP countries. It is one of the few post-socialist economies that have preserved the dominance of the state sector and built complicated systems of subsidisation and economic support for the population designed to manage the political-business cycle (see Chubrik, Shymanovich, Zaretsky (2012)). This model has allowed the economy to grow quite steadily until recently. However, the distorted system of incentives that was created for enterprises and households has resulted in the need for a “correction”, which happened in the form of a balance of payments crisis in 2011. The impact of this factor on migration has not been fully visible yet. At the same time the relatively long period of stability and gradual, but steady, increase in welfare payments has played a role as a migration-restraining factor. In order to estimate cost and benefits of labour migration between EU and Belarus, this study utilises publically available literature as background and relies where possible on micro-data: Census-2009, Household Budget Survey (HBS), as well as relevant official data and data from polls related to the topic. Additionally, some sections of this report rely on information collected in the course of a focus group meeting with labour migrants and a series of in-depth interviews with officials from state, international, and non-governmental agencies dealing with migration. Lastly, in some cases anecdotal evidence was collected to support some of the new trends that have not yet been recorded in the statistics.
Authored by: Alexander Chubrik and Alaksei Kazlou
http://businessculture.org - Find out about business culture in the Czech Republic. This guide is part of the Passport to Trade 2.0 project, which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
Ukraine belongs to the group of countries which are known for the widespread phenomenon of subsistence and semi-subsistence farming. Individual farmers are not obliged to produce financial reports and their incomes belong to the category of unobservable incomes. When checking the eligibility for social assistance the level of their incomes needs to be estimated. In a country, where poverty rate is quite high, the coverage of the poor with financial aid is relatively low and public finances under constant control, the importance of a fair and justified methodology for income imputation is particularly strong. In this situation, an outdated and unfair current system of agriculture income estimation in Ukraine calls for immediate changes. This paper presents recommendations for the Ukrainian government in the area of agriculture income imputation, where several methods of estimating farm income were proposed (including the one based on Household Budget Survey). The recommendations were preceded with the analysis of five countries' practices in this area: Kazakhstan, Kyrgyzstan, Moldova, Russia, and Poland. A review of different means testing methods, including direct means testing and proxy means testing, served as an introduction to the topic.
Authored by: Dmytro Boyarchuk, Liudmyla Kotusenko, Katarzyna Pietka-Kosinska, Roman Semko, Irina Sinitsina
Published in 2009
The report aims to identify major existing gaps in the five socio-economic dimensions (economic, human, openness, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Aziz Atamanov, Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Lukashova, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina
Published in 2008
Michael Tokmazishvili
Until the early 1990s, the discussions on fiscal policy primarily centered on the functions of economic stabilization, income redistribution and resource allocation. Long-term growth was not usually viewed as an end itself, and fiscal policy was often not sufficiently tailored to the different circumstances and priorities of countries at different stages of development. It is only relatively recently that the discussion has gradually focused on the links between different dimensions of quality of public finances and economic growth.
Based on the conceptual framework for linking the quality of public finances and economic growth that has been developed by the European Commission and applied to the EU Member States, this study examines the conditions under which the budgetary policy, and more specifically expenditure, revenue and financing design would be supportive of growth in the Mediterranean partner countries of the European Union. The study also highlights some of the interlinkages between fiscal policy and growth and summarises empirical findings found in the literature with particular focus on Mediterranean partner countries of the European Union.
The study concludes by highlighting possible areas in the planning and execution of fiscal policy and governance where growth enhancing interventions can be applied.
Authored by: Leonor Coutinho, Luc De Wulf, Santiago Florez, Cyrus Sassanpour
Published in 2010
The paper builds predictive scenarios for the agricultural sector of eleven Mediterranean countries (Med 11), namely Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and Turkey. First, it assesses the performance trends of the Med 11 agricultural sector with a focus on production, consumption and trade patterns, incentives, trade protection policies and trade relations with the EU and productivity dynamics and their determinants. Secondly, it presents four scenarios based on the main value chains of the agriculture sector of Med 11: animal products, fruits and vegetables, sugar and edible oil, cereals and fish and other sea products. The four scenarios are: business as usual, Mediterranean One global Player, the Euro Mediterranean Area under threat and the EU and Med 11 as Regional Player.
Written by Saad Belghazi. Published in August 2012.
PDF available on our website at: http://www.case-research.eu/en/node/57764
Labour migration does not appear to have the same magnitude and socio-economic importance in Belarus as in other EaP countries. It is one of the few post-socialist economies that have preserved the dominance of the state sector and built complicated systems of subsidisation and economic support for the population designed to manage the political-business cycle (see Chubrik, Shymanovich, Zaretsky (2012)). This model has allowed the economy to grow quite steadily until recently. However, the distorted system of incentives that was created for enterprises and households has resulted in the need for a “correction”, which happened in the form of a balance of payments crisis in 2011. The impact of this factor on migration has not been fully visible yet. At the same time the relatively long period of stability and gradual, but steady, increase in welfare payments has played a role as a migration-restraining factor. In order to estimate cost and benefits of labour migration between EU and Belarus, this study utilises publically available literature as background and relies where possible on micro-data: Census-2009, Household Budget Survey (HBS), as well as relevant official data and data from polls related to the topic. Additionally, some sections of this report rely on information collected in the course of a focus group meeting with labour migrants and a series of in-depth interviews with officials from state, international, and non-governmental agencies dealing with migration. Lastly, in some cases anecdotal evidence was collected to support some of the new trends that have not yet been recorded in the statistics.
Authored by: Alexander Chubrik and Alaksei Kazlou
http://businessculture.org - Find out about business culture in the Czech Republic. This guide is part of the Passport to Trade 2.0 project, which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
Ukraine belongs to the group of countries which are known for the widespread phenomenon of subsistence and semi-subsistence farming. Individual farmers are not obliged to produce financial reports and their incomes belong to the category of unobservable incomes. When checking the eligibility for social assistance the level of their incomes needs to be estimated. In a country, where poverty rate is quite high, the coverage of the poor with financial aid is relatively low and public finances under constant control, the importance of a fair and justified methodology for income imputation is particularly strong. In this situation, an outdated and unfair current system of agriculture income estimation in Ukraine calls for immediate changes. This paper presents recommendations for the Ukrainian government in the area of agriculture income imputation, where several methods of estimating farm income were proposed (including the one based on Household Budget Survey). The recommendations were preceded with the analysis of five countries' practices in this area: Kazakhstan, Kyrgyzstan, Moldova, Russia, and Poland. A review of different means testing methods, including direct means testing and proxy means testing, served as an introduction to the topic.
Authored by: Dmytro Boyarchuk, Liudmyla Kotusenko, Katarzyna Pietka-Kosinska, Roman Semko, Irina Sinitsina
Published in 2009
http://businessculture.org - Find out about business culture in Slovenia. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
http://businessculture.org - Find out about business culture in Estonia. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
http://businessculture.org - Find out about business culture in the Slovak Republic. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
http://businessculture.org - Find out about business culture in Poland. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
The ILO and the informal sector: an institutional historyDr Lendy Spires
To learn from history, we must know it. Over the past three decades, the ILO has been both the midwife and the principal international institutional home for the concept of the informal sector. As we enter the next millennium, with a new Director General and a refocused mandate on “decent work” and an increased emphasis on to the marginalised and the excluded, it seems timely to pause and look back.
Over these past thirty odd years, how has this institution wrestled with the informal sector, both as a concept and as a painful reality for our constituents? Where did this concept come from? How has the ILO dealt with it over the years, with what successes ... and what failures? Despite these three decades of work, the informal sector is still a topic which elicits diverging views, sometimes passionately so, about how to define it, how to measure and to classify it, and especially about how to respond to it. There is even debate on what to call it. There is little divergence now, however, that the informal sector exists and will be with us for the foreseeable future.
This consensus is in large measure the result of these three decades of ILO’s effort both to develop the concept of the informal sector and to implant it into the development paradigm. In this paper, I focus on recording the institutional history of this effort rather than on the concept itself. The concept of the informal sector has itself evolved over these years. My intention, however, is neither to trace that conceptual evolution nor to explore its current state. That is a sufficiently broad topic on its own to merit taking up separately. In this paper, I concentrate on the bureaucratic or institutional history of the ILO and the informal sector.
How did the International Labour Office, as a large international and also bureaucratic institution (with both the strengths and the weaknesses these characteristics entail) respond to a concept and an economic reality which is both central to the institution’s core mandate of social justice and at the same time foreign to its traditionally understood tripartite constituency and institutional culture? The “official record” of an institution is just the skeleton of its history. Each officially recorded event is done (or left undone), supported (or opposed) by real people. An institutional history, then, should also include this sometimes collaborative and sometimes conflictual but always complex human interaction of the people actually involved in these events. In the following pages, I have tried to provide an account not just of the official events by the formal institutional ILO, but also some of the human environment and the professional context within which these events took place.
For some of these, I was a participant; for many others, they happened “just down the hall” and I knew personally the officials who were involved. So what follows includes an element of personal memoir.
http://businessculture.org - Find out about business culture in Denmark. This guide is part of the Passport to Trade 2.0 project, which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
Pakistan: Countering Militancy in PATA (ICG report, 2013 January)fatanews
Pakistan’s Provincially Administered Tribal Areas (PATA), which include Swat and six neighbouring districts and areas in Khyber Pakhtunkhwa province (KPK), remains volatile more than three years after military operations sought to oust Islamist extremists. Militant groups such as the Sunni extremist Tehrik-e-Nifaz-e-Shariat-e-Mohammadi (TNSM) and its Pakistani Taliban-linked Fazlullah faction are no longer as powerful in Swat and other parts of PATA as they were in 2008 and early 2009, but their leaders and foot soldiers remain at large, regularly attacking security personnel and civilians. If this once dynamic region is to stabilise, PATA’s governance, security and economic revival must become a top priority for the Pakistan Peoples Party (PPP)-led government in Islamabad and the Awami National Party (ANP)-led government in Peshawar – and for their successors following the next general elections.
While the militants continue to present the main physical threat, the military’s poorly conceived counter-insurgency strategies, heavy-handed methods and failure to restore responsive and accountable civilian administration and policing are proving counter-productive, aggravating public resentment and widening the gulf between PATA’s citizens and the state. Meanwhile neither the federal nor the KPK provincial government is fully addressing the security concerns of residents.
Public and political support for action against the TNSM and allied Pakistani Taliban networks in Swat and its neighbouring districts remains strong, demonstrated by the outrage against the 9 October 2012 attack by Mullah Fazlullah’s Taliban faction on Malala Yousafzai, a Swat-based fourteen-year-old activist for girls’ right to education. That attack has also further eroded public confidence in the military’s claims of having dismantled the insurgency and underscores the grave security challenges that PATA’s residents face.
The military’s continued control over the security agenda, governance and administration in PATA and the state’s failure to equip KPK’s police force with the tools and authority it needs to tackle extremist violence lie at the heart of the security and governance challenges. Some serious efforts have been made to enhance police capacity, functioning and presence on the streets, including by increasing the size of the force and the number of police stations, particularly in Swat. However, they are insufficient. The KPK police should be properly trained, equipped, and accountable. Islamabad and Peshawar, KPK’s provincial capital, need to abolish parallel law enforcement entities such as Levies, dismantle state-supported tribal lashkars (militias) and give KPK’s police the lead in enforcing the law and bringing extremists to justice.
Yet, the complexities of PATA’s legal framework still make upholding the rule of law a daunting task. Unlike the Federally Administered Tribal Areas (FATA)... || Subscribe to our email newslette
The purpose of this study is to analyze the course, determinants and political economy of economic reforms in Russia conducted in the period 1985-2003. The year 1985 can be considered an important turning point in Soviet/Russian history, marked as it was by the election of Mikhail Gorbachev to the position of General Secretary of the Communist Party of Soviet Union (CPSU) and (de facto) leader of the USSR. This nomination brought an end to two decades of political consolidation of the communist regime connected with the name of General Secretary Leonid Brezhnev and his short-living successors (Yurii Andropov and Konstantin Chernenko), often referred to ex post as 'the stagnation period' (vremya zastoya). Gorbachev initiated a series of important political and (to a lesser extent) economic reforms, which led eventually to the collapse of the communist regime and the disintegration of the Soviet empire in 1991. Thus, 1991 must be seen as another dramatic turning point in Russia's contemporary history. From the end of 1991 onwards political and economic reforms have been carried out by the new Russian state that emerged after the disintegration of the USSR. This paper aims to explain the political and institutional determinants of economic reforms in the Russian Federation.
Authored by: Rafal Antczak, Marek Dabrowski, Vladimir Mau, Aleksey Shapovalov, Irina Sinitsina, Konstantin Yanovskiy, Sergei Zhavoronkov
Published in 2004
This study analysed the factors which facilitated or discouraged potential beneficiaries, e.g. tourism organizations and tourism SMEs, local stakeholders and businesses to apply for support from the European Union Structural Funds for tourism development at local and regional level. In the current recession it was important to attract as many applicants as possible. Through a wide-ranging literature review, case studies, questionnaires and interviews, the research study tried to answer questions about Romania’s modest success in attracting funds from the European Union structural funds to sustain its declining tourism sector.
The banking sector in transition economies deserves a special attention of policy makers and the public. The first reason for this attention is that financial intermediation plays a special role in an economy: it channels financial savings of enterprises and households into investments. There is no economic growth in a country if this function is not executed in an effective and efficient way, and if the financial sector is not credible. Therefore reestablishment of a sound banking sector has been crucially important for transition countries.
Authored by: Ewa Balcerowicz and Andrzej Bratkowski
Published in 2001
Colliers International Vietnam
Quarterly Knowledge Report for an economic overview and analysis on the Residence, Serviced Apartment, Office, Retail, Condominium, Villa/Townhouse and Industry Real Estate market in Vietnam.
The book represents success stories collected by the grantees of the Program “Regions for Reforms” implemented by the Institute for Economic Research and Policy Consulting and European Pravda and financed by the European Union.
Colliers International Vietnam
Quarterly Knowledge Report for an economic overview and analysis on the Residence, Serviced Apartment, Office, Retail, Condominium, Villa/Townhouse and Industry Real Estate market in Vietnam.
http://businessculture.org - Find out about business culture in Sweden. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
http://businessculture.org - Find out about business culture in Slovenia. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
http://businessculture.org - Find out about business culture in Estonia. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
http://businessculture.org - Find out about business culture in the Slovak Republic. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
http://businessculture.org - Find out about business culture in Poland. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
The ILO and the informal sector: an institutional historyDr Lendy Spires
To learn from history, we must know it. Over the past three decades, the ILO has been both the midwife and the principal international institutional home for the concept of the informal sector. As we enter the next millennium, with a new Director General and a refocused mandate on “decent work” and an increased emphasis on to the marginalised and the excluded, it seems timely to pause and look back.
Over these past thirty odd years, how has this institution wrestled with the informal sector, both as a concept and as a painful reality for our constituents? Where did this concept come from? How has the ILO dealt with it over the years, with what successes ... and what failures? Despite these three decades of work, the informal sector is still a topic which elicits diverging views, sometimes passionately so, about how to define it, how to measure and to classify it, and especially about how to respond to it. There is even debate on what to call it. There is little divergence now, however, that the informal sector exists and will be with us for the foreseeable future.
This consensus is in large measure the result of these three decades of ILO’s effort both to develop the concept of the informal sector and to implant it into the development paradigm. In this paper, I focus on recording the institutional history of this effort rather than on the concept itself. The concept of the informal sector has itself evolved over these years. My intention, however, is neither to trace that conceptual evolution nor to explore its current state. That is a sufficiently broad topic on its own to merit taking up separately. In this paper, I concentrate on the bureaucratic or institutional history of the ILO and the informal sector.
How did the International Labour Office, as a large international and also bureaucratic institution (with both the strengths and the weaknesses these characteristics entail) respond to a concept and an economic reality which is both central to the institution’s core mandate of social justice and at the same time foreign to its traditionally understood tripartite constituency and institutional culture? The “official record” of an institution is just the skeleton of its history. Each officially recorded event is done (or left undone), supported (or opposed) by real people. An institutional history, then, should also include this sometimes collaborative and sometimes conflictual but always complex human interaction of the people actually involved in these events. In the following pages, I have tried to provide an account not just of the official events by the formal institutional ILO, but also some of the human environment and the professional context within which these events took place.
For some of these, I was a participant; for many others, they happened “just down the hall” and I knew personally the officials who were involved. So what follows includes an element of personal memoir.
http://businessculture.org - Find out about business culture in Denmark. This guide is part of the Passport to Trade 2.0 project, which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
Pakistan: Countering Militancy in PATA (ICG report, 2013 January)fatanews
Pakistan’s Provincially Administered Tribal Areas (PATA), which include Swat and six neighbouring districts and areas in Khyber Pakhtunkhwa province (KPK), remains volatile more than three years after military operations sought to oust Islamist extremists. Militant groups such as the Sunni extremist Tehrik-e-Nifaz-e-Shariat-e-Mohammadi (TNSM) and its Pakistani Taliban-linked Fazlullah faction are no longer as powerful in Swat and other parts of PATA as they were in 2008 and early 2009, but their leaders and foot soldiers remain at large, regularly attacking security personnel and civilians. If this once dynamic region is to stabilise, PATA’s governance, security and economic revival must become a top priority for the Pakistan Peoples Party (PPP)-led government in Islamabad and the Awami National Party (ANP)-led government in Peshawar – and for their successors following the next general elections.
While the militants continue to present the main physical threat, the military’s poorly conceived counter-insurgency strategies, heavy-handed methods and failure to restore responsive and accountable civilian administration and policing are proving counter-productive, aggravating public resentment and widening the gulf between PATA’s citizens and the state. Meanwhile neither the federal nor the KPK provincial government is fully addressing the security concerns of residents.
Public and political support for action against the TNSM and allied Pakistani Taliban networks in Swat and its neighbouring districts remains strong, demonstrated by the outrage against the 9 October 2012 attack by Mullah Fazlullah’s Taliban faction on Malala Yousafzai, a Swat-based fourteen-year-old activist for girls’ right to education. That attack has also further eroded public confidence in the military’s claims of having dismantled the insurgency and underscores the grave security challenges that PATA’s residents face.
The military’s continued control over the security agenda, governance and administration in PATA and the state’s failure to equip KPK’s police force with the tools and authority it needs to tackle extremist violence lie at the heart of the security and governance challenges. Some serious efforts have been made to enhance police capacity, functioning and presence on the streets, including by increasing the size of the force and the number of police stations, particularly in Swat. However, they are insufficient. The KPK police should be properly trained, equipped, and accountable. Islamabad and Peshawar, KPK’s provincial capital, need to abolish parallel law enforcement entities such as Levies, dismantle state-supported tribal lashkars (militias) and give KPK’s police the lead in enforcing the law and bringing extremists to justice.
Yet, the complexities of PATA’s legal framework still make upholding the rule of law a daunting task. Unlike the Federally Administered Tribal Areas (FATA)... || Subscribe to our email newslette
The purpose of this study is to analyze the course, determinants and political economy of economic reforms in Russia conducted in the period 1985-2003. The year 1985 can be considered an important turning point in Soviet/Russian history, marked as it was by the election of Mikhail Gorbachev to the position of General Secretary of the Communist Party of Soviet Union (CPSU) and (de facto) leader of the USSR. This nomination brought an end to two decades of political consolidation of the communist regime connected with the name of General Secretary Leonid Brezhnev and his short-living successors (Yurii Andropov and Konstantin Chernenko), often referred to ex post as 'the stagnation period' (vremya zastoya). Gorbachev initiated a series of important political and (to a lesser extent) economic reforms, which led eventually to the collapse of the communist regime and the disintegration of the Soviet empire in 1991. Thus, 1991 must be seen as another dramatic turning point in Russia's contemporary history. From the end of 1991 onwards political and economic reforms have been carried out by the new Russian state that emerged after the disintegration of the USSR. This paper aims to explain the political and institutional determinants of economic reforms in the Russian Federation.
Authored by: Rafal Antczak, Marek Dabrowski, Vladimir Mau, Aleksey Shapovalov, Irina Sinitsina, Konstantin Yanovskiy, Sergei Zhavoronkov
Published in 2004
This study analysed the factors which facilitated or discouraged potential beneficiaries, e.g. tourism organizations and tourism SMEs, local stakeholders and businesses to apply for support from the European Union Structural Funds for tourism development at local and regional level. In the current recession it was important to attract as many applicants as possible. Through a wide-ranging literature review, case studies, questionnaires and interviews, the research study tried to answer questions about Romania’s modest success in attracting funds from the European Union structural funds to sustain its declining tourism sector.
The banking sector in transition economies deserves a special attention of policy makers and the public. The first reason for this attention is that financial intermediation plays a special role in an economy: it channels financial savings of enterprises and households into investments. There is no economic growth in a country if this function is not executed in an effective and efficient way, and if the financial sector is not credible. Therefore reestablishment of a sound banking sector has been crucially important for transition countries.
Authored by: Ewa Balcerowicz and Andrzej Bratkowski
Published in 2001
Colliers International Vietnam
Quarterly Knowledge Report for an economic overview and analysis on the Residence, Serviced Apartment, Office, Retail, Condominium, Villa/Townhouse and Industry Real Estate market in Vietnam.
The book represents success stories collected by the grantees of the Program “Regions for Reforms” implemented by the Institute for Economic Research and Policy Consulting and European Pravda and financed by the European Union.
Colliers International Vietnam
Quarterly Knowledge Report for an economic overview and analysis on the Residence, Serviced Apartment, Office, Retail, Condominium, Villa/Townhouse and Industry Real Estate market in Vietnam.
http://businessculture.org - Find out about business culture in Sweden. This guide is part of the Passport to Trade 2.0 project which examined European Business culture in 31 countries looking at business communication, business etiquette, business meeting etiquette, internship and student placements, cost of living, work-life-balance and social media guide.
This paper explores the effects that the global financial crisis of 2008 - 2010 had on the funding and performance of the healthcare and education sectors in the Russian Federation (RF). Both education and healthcare expenditures increased in terms of total general government (GG) spending relative to GDP, partly as a result of reduced GDP. The crisis induced further centralization by increasing both the role of the federal budget in funding social services and the dependence of regions on federal transfers, but it did not result in enhanced resource allocation or more effective public spending. By revealing the inefficiencies that accumulated in education and healthcare financing and management throughout the 2000s, the crisis exposed acute funding shortages in contrast to the government's stated goals and an urgent need for reform in these sectors. The impact of the financial crisis on the delivery of education and health services appeared to be delayed and was mitigated by the resources accumulated during the pre-crisis boom. The paper concludes with several recommendations for the RF public service sector concerning improvements in the inter-governmental transfer system through increasing transparency and introducing performance-oriented budgeting.
Authored by: Irina Sinitsina
Published in 2011
The objective of this paper has been to experiment diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about the possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession.
Authored by: Vladimir Dubrovskiy, Inna Golodniuk, Janusz Szyrmer
The current fiscal imbalances and fragilities in the Southern and Eastern Mediterranean countries (SEMC) are the result of decades of instability, but have become more visible since 2008, when a combination of adverse economic and political shocks (the global and European financial crises, Arab Spring) hit the region. In an environment of slower growth and higher public expenditure pressures, fiscal deficits and public debts have increased rapidly. This has led to the deterioration of current accounts, a depletion of official reserves, the depreciation of some currencies and higher inflationary pressure.
To avoid the danger of public debt and a balance-of-payment crisis, comprehensive economic reforms, including fiscal adjustment, are urgently needed. These reforms should involve eliminating energy and food subsidies and replacing them with targeted social assistance, reducing the oversized public administration and privatizing public sector enterprises, improving the business climate, increasing trade and investment openness, and sector diversification. The SEMC may also benefit from a peace dividend if the numerous internal and regional conflicts are resolved.
However, the success of economic reforms will depend on the results of the political transition, i.e., the ability to build stable democratic regimes which can resist populist temptations and rally political support for more rational economic policies.
Authored by: Marek Dąbrowski
Published in 2014
This paper provides an overview of public expenditures on education and healthcare in Belarus, Georgia, Kyrgyzstan, Moldova, Russia, Ukraine and some other countries of the former Soviet Union before and during the global financial crisis. Before the crisis, the governments of these countries were substantially increasing spending on education and health. The crisis adversely affected the FSU countries and worsened their fiscal situation. The analysis indicates that during the crisis, despite the fiscal constraints, public education and health expenditures have mostly been maintained or increased in almost all of these countries. However, the crisis situation was not taken as an opportunity to address these countries' key education and healthcare problems related to demographic changes, insufficient per capita expenditure levels, the low efficiency of public spending and the insufficient quality of services. These issues form an ambitious reform agenda for these countries in the medium- and long-term.
Authored by: Alexander Chubrik, Marek Dabrowski, Roman Mogilevsky, Irina Sinitsina
Published in 2011
The paper discusses the issue of labor force mobility in a broad sense, and analyses how changes in social security policy and the structure of the social safety net (SSN) affects different aspects of labor force mobility. The text is structured as follows: Introduction, then follows Chapter 2, which provides an overview of the labor market and social safety net developments in Russian and Ukraine over the last decade, as well as discusses common features of these countries. The Chapter 3 establishes theoretical models for different aspects of labor force mobility, discusses the availability of data on Russia and Ukraine to test these models, and provides a statistical analysis of the data. The Chapter 4 discusses results of the statistical analysis. The final chapter discusses policy conclusions that can be derived from comparison of the effect of the SSN on labor mobility in these two countries, and extends them to all countries in transition.
Authored by: Marek Gora, Oleksander Rohozynsky
Published in 2009
The EU-Russia Partnership and Cooperation Agreement, which entered into force in 1997 foresees the possible establishment of a free trade area (FTA) between the parties. The aim of our study is to evaluate the possible economic, social and environmental impact of such a free trade agreement between the European Union and Russia.
The results of the analysis indicate that an EU-Russia FTA will be beneficial to the Russian Federation and the EU27. Some sectors are expected to contract in the medium term, but their importance in total output is small. Over the long run, the majority of sectors in Russia are expected to expand, while only a few sectors in the EU27 are expected to register negligible decreases in output. We estimate that welfare losses from the environmental damages would be very small for Russia (possibly even smaller due to the implementation of greener technologies), and negligible for the EU. Despite some significant negative medium-term social implications in selected sectors in Russia, the overall increase in economic activity and wages, coupled with likely domestic policies aiming at easing the impact of transitional unemployment, are expected to allow for the overall reduction in poverty rates. Overall, the results show that significant welfare gains (2.24% of GDP for Russia) would accrue from the deep FTA scenario involving a significant reduction of NTBs along with additional flanking measures, particularly on competition, IPR protection and corruption, which would help re-branding of Russia as a safe and attractive investment location. Also a number of countries such as Finland, Ireland, Netherlands, Denmark, Estonia, Slovakia, Slovenia and Sweden are expected to see their welfare increase by around 0.5% of GDP.
Authored by: Elena Jarocinska, Maryla Maliszewska, Milan Scasny
Published in 2010
The aim of this paper is to examine the issues of gender disparities in the Commonwealth of Independent States (CIS) region, with a special focus given to countries covered by the European Neighbourhood Policy (ENP). The analysis is conducted in several dimensions: labour participation, economic opportunity, political empowerment, educational attainment, and health and demography. Beside the comparative study of "in region differentials" done for the CIS, I analyze the trends in gender disparities in comparison to EU-12 and EU-15, using data for the period 1985-2005.
The study confirms the existence of slightly different paths in which gender disparities have evolved over time. While in EU-15 women participation in labour market, their remuneration, and position in public life have significantly increased, in majority of the CIS countries a gradual decrease of female labour activity was reported. In addition female representation in politics and public life has shrunken after and during the transition period. On the other hand in such fields as secondary and tertiary education attainment, health, and demography male population in the CIS region has became more disadvantaged, which also leads to enlarging gender gap.
Authored by: Magdalena Rokicka
Published in 2008
This study is part of the project entitled “Costs and Benefits of Labour Mobility between the EU and the Eastern Partnership Countries” for the European Commission1. The study was written by Luca Barbone (CASE) Mikhail Bonch- Osmolovskiy (CASE) and Matthias Luecke (CASE, Kiel). It is based on the six country studies for the Eastern Partnership countries commissioned under this project and prepared by Mihran Galstyan and Gagik Makaryan (Armenia), Azer Allahveranov and Emin Huseynov (Azerbaijan), Aleksander Chubrik and Aliaksei Kazlou (Belarus), Lasha Labadze and Mirjan Tukhashvili (Georgia), Vasile Cantarji and Georgeta Mincu (Moldova), Tom Coupé and Hanna Vakhitova (Ukraine). The authors would like to thank for their comments and suggestions Kathryn Anderson, Martin Kahanec, Costanza Biavaschi, Lucia Kurekova, Monica Bucurenciu, Borbala Szegeli, Giovanni Cremonini and Ummuhan Bardak, as well as the dbaretailed review provided by IOM. The views in this study are those of the authors’ only, and should not be interpreted as representing the official position of the European Commission and its institutions.
Written by Luca Barbone, Mikhail Bonch-Osmolovsky and Matthias Luecke. Published in September 2013.
PDF available on our website at: http://www.case-research.eu/en/node/58264
Ukraine is a migration-intensive country, with an estimated 1.5-2 million labour migrants (about 5% of the working-age population). Slightly over a half of these migrants travel for work to the EU. This study discusses the impact of this large pool of migrants on both the sending and receiving countries. It also assesses how liberalisation of the EU visa regime, something that the EU is currently negotiating with Ukraine, will affect the stream of Ukrainian labour migrants to EU countries. Our study suggests that the number of tourists will increase substantially, whereas the increase in the number of labour migrants is unlikely to be very large. We also suggest that the number of legal migrants is likely to increase, but at the same time the number of illegal migrants will decline because currently only a third of migrants from Ukraine have both residence and work permits in the EU, while about a quarter of them stay there illegally.
Authored by: Hannah Vakhitova and Tom Coupé
Published in 2013
This paper analyses the public finance performance and the dynamics of government expenditures on education and health in the Kyrgyz Republic in 2007-2010, when the country was hit by the global economic crisis and then by an internal political crisis in 2010. Despite these crisis conditions, public health expenditures have increased substantially. In education, recurrent expenditures have been protected, while capital investments have been cut dramatically. Both sectors suffer from chronic under-financing, which results in an insufficient quality of services. The country's fiscal situation in the medium-term is going to be difficult, so efficiency-oriented reforms need to be implemented in health care and especially in education in order to sustain the development of these critical services in Kyrgyzstan.
Authored by: Roman Mogilevsky
Published in 2011
Demographic change (driven by the second demographic transition) led to an uncontrolled increase in scale of various social expenditure in the OECD area, especially in continental Europe. Costs of social transfers created fiscal pressure leading to the necessity of tax increases all over Europe, including the New Member States. Employment consequences of emerging higher tax wedge has become the topic of large body of research. However, surprisingly little evidence is known on distribution of that problem across workers. Is the effect of high tax wedge equally spread or certain groups of workers suffer more than others? More specifically, are low productivity workers exposed more to the problems caused by high tax wedge?
Authored by: Marek Gora, Artur Radziwill, Agnieszka Sowa, Mateusz Walewski
Published in 2006
This report, titled "Age and Productivity. Human Capital Accumulation and Depreciation", was released within a project NEUJOBS- “The Impact of Service Sector Innovation and Internationalisation on Growth and Productivity”, funded by the European Commission, Research Directorate General as part of the 7th Framework Programme.
The report focuses on links between age, productivity and lifelong learning. Various data sources (EU-SILC, LFS, Structure of Earnings Survey, SHARE, ELSA, SHARELIFE) and methodological approaches were used in this report. The analysis identifies clusters of countries with common characteristics of age-earnings profiles (for certain groups of employees) and allows for an explanation of those differences. Some differences can be attributed to the share of sectors, education types, and occupations in country-specific employment. Others are due to labour market institutions and the (dis)incentives to work at older ages provided by social security systems. Additionally, the dynamics of earnings after age 50 differ less between educational and occupational groups than at earlier ages. The authors show that the dynamics of average wages are strongly influenced by the timing of entering and leaving labour market. An estimation of the impact of LLL on productivity (measuredby earnings) at older ages shows that for employees aged 50+, participation in training increases wages in the short-term.
Written by Anna Ruzik-Sierdzinska, Maciej Lis, Monika Potoczna, Michele Belloni and Claudia Villosio. Published in October 2013.
PDF available on our website at: http://www.case-research.eu/en/node/58334
In this study the author analyzes the experience of the European Union in cooperation with non-member neighboring countries, to which the EU’s integration process and institutions are both available. On the one hand, several non-member countries are interested in close cooperation or integration with the organization because of their future membership aspirations or simply because they consider the EU an important economic and political partner. On the other hand, the EU itself is also interested in building such close relations, for economic but often also for geopolitical and security reasons.
Written by Marek Dąbrowski. Published in September 2014.
PDF available on our website at: http://www.case-research.eu/en/node/58671
The transition process from a centralised to a market economy in Poland has been accompanied by an unprecedented increase in poverty and a deepening of inequality across households – not only in terms of income but also in terms of socio-economic status.
Although a small number of studies describing the economic situation of the poor in Poland have been undertaken, our understanding of the mechanisms that make poverty persist in the household context is considerably limited. The interaction of a number of factors may for example, result in individuals being trapped in a vicious circle of poverty. Low household income may lead to social exclusion and family distress, which is likely to have far-reaching consequences for all household members. Social exclusion may contribute to foster alcoholism, impede the human capital investment in children, and thus jeopardise the socioeconomic situation of the next generation. Socially excluded people experience severe difficulties in finding re-employment. Social transfers might even worsen the situation by providing a disincentive to seek work.
Authored by: Miriam Beblo, Stanislawa Golinowska, Charlotte Lauer, Katarzyna Pietka-Kosinska, Agnieszka Sowa
Published in 2002
The paper focuses on the social safety nets in Russian Federation and Ukraine in the view of changes on the labour market since the beginning of economic transition. The authors showed that many past phenomena (e.g. restructuring of the economy, wage and pension arrears, new groups at-risk-of-poverty, demographic transition) caused a need to change an old type social safety net (SSN) into the new one, better adapted to emerging more liberal economy problems.
Additionally, the authors analysed some gender specific issues related to social security that are caused mainly by inequalities in the labour market. Differences of earnings between men and women in Russia caused by sector segregation account for seem to be more important than the gap between gender earnings attributed to the position. In Ukraine the main contributors to gross gender differential of log earnings (that equals to 32%) explained by our model are sector segregation and occupation.
The authors also pointed out to future policy challenges in the area of social security systems in both countries. The retirement reforms introduced recently are a step in the right direction, although their impact will not be felt for a number of years. Other reforms, with more immediate results, are necessary. Social safety nets should be made more efficient and social benefits should be better targeted.
Authored by: Marek Gora, Grzegorz Kula, Oleksandr Rohozynsky, Magdalena Rokicka, Anna Ruzik-Sierdzinska
Published in 2009
The paper aims to assess the impact of selected elements of social harmonization on labor market performance in the European Union among two groups of workers—the total working population and the elderly. The aim is to examine whether upward changes in labor taxes affect employment, unemployment, and inactivity rates in the European Union.
Similar to CASE Network Reports 74 - Assessing the Development Gap (20)
The report examines the social and economic drivers and impact of circular migration between Belarus and Poland, Slovakia, and the Czech Republic. The core question the authors sought to address was how managing circular migration could, in the long term, help to optimise labour resources in both the country of origin and the destination countries. In the pages that follow, the authors of the report present the current and forecasted labour market and demographic situation in their respective countries as well as the dynamics and characteristics of short-term labour migration flows between Belarus and Poland, Slovakia, and the Czech Republic, concentrating on the period since 2010. They also outline and discuss related policy responses and evaluate prospects for cooperation on circular migration.
Podręcznik został opracowany w celu przekazania trenerom i nauczycielom podstawowej wiedzy, która może być przydatna w prowadzeniu szkoleń promujących pracę rejestrowaną. Prezentuje on z jednej strony korzyści z pracy rejestrowanej, z drugiej – potencjalne koszty związane z pracą nierejestrowaną. W pierwszej kolejności informacje te przedstawiono w odniesieniu do pracowników najemnych (rozdział 2), podkreślając w sposób szczególny to, że negatywne konsekwencje pracy nierejestrowanej są ponoszone przez całe życie. Ze względu na specyficzną sytuację cudzoziemców pracujących w Polsce konsekwencje ponoszone przez tę grupę opisano oddzielnie (rozdział 3). Ponadto zaprezentowano skutki dotyczące pracodawców z szarej strefy z wyodrębnieniem tych, którzy zatrudniają cudzoziemców (rozdział 4). Uzupełnieniem przedstawionych informacji jest opis działań podejmowanych przez państwo w celu ograniczenia zjawiska pracy nierejestrowanej w Polsce (rozdział 5) oraz prowadzonych w Wielkiej Brytanii, czyli w kraju będącym liderem w walce z szarą strefą (rozdział 6).
European countries face a challenge related to the economic and social consequences of their societies’ aging. Specifically, pension systems must adjust to the coming changes, maintaining both financial stability, connected with equalizing inflows from premiums and spending on pensions, and simultaneously the sufficiency of benefits, protecting retirees against poverty and smoothing consumption over their lives, i.e. ensuring the ability to pay for consumption needs at each stage of life, regardless of income from labor.
One of the key instruments applied toward these goals is the retirement age. Formally it is a legally established boundary: once people have crossed it – on average – they significantly lose their ability to perform work (the so-called old-age risk). But since the 1970s, in many developed countries the retirement age has become an instrument of social and labor-market policy. Specifically, in the 1970s and ‘80s, an early retirement age was perceived as a solution allowing a reduction in the supply of labor, particularly among people with relatively low competencies who were approaching retirement age, which is called the lump of labor fallacy. It was often believed that people taking early retirement freed up jobs for the young. But a range of economic evidence shows that the number of jobs is not fixed, and those who retire don’t in fact free up jobs. On the contrary, because of higher spending by pension systems, labor costs rise, which limits the supply of jobs. In general, a good situation on the labor market supports employment of both the youngest and the oldest labor force participants. Additionally, a lower retirement age for women was maintained, which resulted to a high degree from cultural conditions and norms that are typical for traditional societies.
Until now, the banking sector has been one of the strong points of Poland’s economy. In contrast to banks in the U.S. and leading Western European economies, lenders in Poland came through the 2008 global financial crisis without a scratch, without needing state financial support. But in recent years the industry’s problems have been growing, creating a threat to economic growth and gains in living standards.
For an economy’s productivity to increase, funds can’t go to all companies evenly, and definitely shouldn’t go to those that are most lacking in funds, but to those that will use them most efficiently. This is true of total external financing, and thus funding both from the banking sector and from parabanks, the capital market and funds from public institutions. In Poland, in light of the relatively modest scale of the capital market, banks play a clearly dominant role in external financing of companies. This is why the author of this text focuses on the bank credit allocation efficiency.
The author points out that in the very near future, conditions will emerge in Poland which – as the experience of other countries shows – create a risk of reduced efficiency of credit allocation to business. Additionally, in Poland today, bank lending to companies is to a high degree being replaced by funds from state aid, which reduces the efficiency of allocation of external funds to companies (both loans and subsidies), as allocation of government subsidies is not usually based on efficiency. This decline in external financing allocation efficiency may slow, halt or even reverse the process, that has been uninterrupted for 28 years, of Poland’s convergence, i.e. the narrowing of the gap in living standards between Poland and the West.
The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance.
This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.
Purpose: This paper tries to identify the wage gap between informal and formal workers and tests for the two-tier structure of the informal labour market in Poland.
Design/methodology/approach: I employ the propensity score matching (PSM) technique and use data from the Polish Labour Force Survey (LFS) for the period 2009–2017 to estimate the wage gap between informal and formal workers, both at the means and along the wage distribution. I use two definitions of informal employment: a) employment without a written agreement and b) employment while officially registered as unemployed at a labour office. In order to reduce the bias resulting from the non-random selection of
individuals into informal employment, I use a rich set of control variables representing several individual characteristics.
Findings: After controlling for observed heterogeneity, I find that on average informal workers earn less than formal workers, both in terms of monthly earnings and hourly wage. This result is not sensitive to the definition of informal employment used and is
stable over the analysed time period (2009–2017). However, the wage penalty to informal employment is substantially higher for individuals at the bottom of the wage distribution, which supports the hypothesis of the two-tier structure of the informal labour market in Poland.
Originality/value: The main contribution of this study is that it identifies the two-tier structure of the informal labour market in Poland: informal workers in the first quartile of the wage distribution and those above the first quartile appear to be in two partially different segments of the labour market.
The rule of law, by securing civil and economic rights, directly contributes to social prosperity and is one of our societies’ greatest achievements. In the European Union (EU), the rule of law is enshrined in the Treaties of its founding and is recognised not just as a necessary condition of a liberal democratic society, but also as an important requirement for a stable, effective, and sustainable market economy. In fact, it was the stability and equality of opportunity provided by the rule of law that enabled the post-war Wirtschaftswunder in Germany and the post-Communist resuscitation of the economy in Poland.
But the rule of law is a living concept that is constantly evolving – both in its formal, de jure dimension, embodied in legislation, and its de facto dimension, or its reception by society. In Poland, in particular, according to the EU, the rule of law has been heavily challenged by government since 2015 and has evolved amid continued pressure exerted on the institutions which execute laws. More recently, the outbreak of the COVID-19 pandemic transformed the perception of the rule of law and its boundaries throughout the EU and beyond (Marzocchi, 2020).
This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported.
In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.
Of the EU-28, the smallest Gaps were observed in Sweden (0.7 percent), Croatia (3.5 percent), and Finland (3.6 percent), the largest – in Romania (33.8 percent), Greece (30.1 percent), and Lithuania (25.9 percent). Overall, half of the EU-28 MS recorded a Gap above 9.2 percent. In nominal terms, the largest Gaps were recorded in Italy (EUR 35.4 billion), the United Kingdom (EUR 23.5 billion), and Germany (EUR 22 billion).
The euro is the second most important global currency after the US dollar. However, its international role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractiveness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union.
Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage point, and the worst, the Spanish Flu, by 6 percentage points. Still, even the Spanish Flu never caused losses on the order of 20% of GDP – not even where it turned out to be a humanitarian disaster, costing the lives of 3-5% of the population. History suggests that if pandemics lead to such deep losses at all, it’s only in particular quarters and not over a whole year, as economic activity rebounds. The strength of that rebound is largely determined by economic policy. The purpose of this work is to describe possible scenarios for a rebound in Polish economic growth after the epidemic.
A separate issue, no less important, is what world will emerge from the current crisis. In the face of the 2008 financial crisis, White House Chief of Staff Rahm Emanuel said: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Such changes can make the economy and society function better than before the crisis. Unfortunately, the opportunities created by the global financial crisis were squandered. Today’s task is more difficult; the scale of various problems has expanded even more. Without deep structural and institutional changes, the world will be facing enduring social and economic problems, accompanied by long-term stagnation.
"Many brilliant prophecies have appeared for the future of the EU and our entire planet. I believe that Europe, in its own style, will draw pragmatic conclusions from the crisis, not revolutionary ones; conclusions that will allow us to continue enjoying a Europe without borders. Brussels will demonstrate its usefulness; it will react ably and flexibly. First of all, contrary to the deceitful statements of members of the Polish government, the EU warned of the threats already in 2021. Secondly, already in mid-March EU assistance programs were ready, i.e. earlier than the PiS government’s “shield” program. The conclusion from the crisis will be a strengthening of all the preventive mechanisms that allow us to recognize threats and react in time of need. Research programs will be more strongly directed toward diagnosing and treating infectious diseases. Europe will gain greater self-sufficiency in the area of medical equipment and drugs, and the EU – greater competencies in the area of the health service, thus far entrusted to the member states. The 2021-27 budget must be reconstructed, to supplement the priority of the Green Deal with economic stimulus programs. In this way structural funds, which have the greatest multiplier effect for investment and the labor market, may return to favor. So once again: an addition, as a conclusion from the crisis, and not a reinvention of the EU," writes Dr. Janusz Lewandowski the author of the 162nd mBank-CASE seminar Proceeding.
Dla wielu rodaków europejskość Polski jest oczywista, trudno jest im nawet wyobrazić sobie, jak kształtowałyby się losy naszego kraju bez uczestnictwa w integracji europejskiej. Szczególnie młode pokolenie traktuje osiągnięty przez nas dzięki uczestnictwie w Unii ogromny postęp cywilizacyjny jako coś danego i naturalnego. Jednak świadomość tego, jaki był nasz punkt wyjścia, jaką przeszliśmy drogę i jak przyczyniły się do tego unijne działania oraz jakie wynikały z tego korzyści powinna nam stale towarzyszyć. Bez tej świadomości, starannego weryfikowania faktów i docenienia naszych osiągnięć grozi nam uleganie niesprawdzonym argumentom przeciwników integracji europejskiej i popełnienie nieodwracalnych błędów. Dla tych, którzy chcą poznać te fakty, przygotowany został raport "Nasza Europa. 15 lat Polski w Unii Europejskiej". Podjęto w nim ocenę 15 lat członkostwa Polski z perspektywy doświadczeń procesu integracji, z jego barierami i sukcesami, a także wyzwaniami przyszłości.
Raport jest wynikiem pracy zbiorowej licznych ekspertów z różnych dziedzin, od wielu lat analizujących wielowymiarowe efekty działania instytucji UE oraz współpracy z krajami członkowskimi na podstawie europejskich wartości i mechanizmów. Autorzy podsumowują korzyści członkostwa Polski w Unii Europejskiej na podstawie faktów, nie stroniąc jednakże od własnych ocen i refleksji.
This report is the result of the joint work of a number of experts from various fields who have been - for many years – analysing the multidimensional effects of EU institutions and cooperation with Member States pursuant to European values and mechanisms. The authors summarise the benefits of Poland’s membership in the EU based on facts; however, they do not hide their own views and reflections. They also demonstrate the barriers and challenges to further European integration.
This report was prepared by CASE, one of the oldest independent think tanks in Central and Eastern Europe, utilising its nearly 30 years of experience in providing objective analyses and recommendations with respect to socioeconomic topics. It is both an expression of concern about Poland’s future in the EU, as well as the authors’ contribution to the debate on further European integration.
Poland’s new Employee Capital Plans (PPK) scheme, which is mandatory for employers, started to be implemented in July 2019. The article looks at the systemic solutions applied in the programme from the perspective of the concept of the simultaneous reconstruction of the retirement pension system. The aim is to present arguments for and against the project from the point of view of various actors, and to assess the chances of success for the new system. The article offers a detailed study of legal solutions, an analysis of the literature on the subject, and reports of institutions that supervise pension funds. The results of this analysis point to the lack of cohesion between certain solutions of the 1999 pension reform and expose a lack of consistency in how the reform was carried out, which led to the eventual removal of the capital part of the pension system. The study shows that additional saving for old age is advisable in the country’s current demographic situation and necessary for both economic and social reasons. However, the systemic solutions offered by the government appear to be chiefly designated to serve short-term state interests and do not create sufficient incentives for pension plan participants to join the programme.
Belarus was among the few post-communist countries to resign from comprehensive market reforms and attempt to improve the efficiency of the economy through administrative means, leaving market mechanisms only an auxiliary role. Since its inception, the ‘Belarusian economic model’ has undergone several revisions of a de-statisation and de-regulation kind, but still the Belarusian economy remains dominated by the state. This paper analyses the characteristic features of the Belarusian economic system – especially those related to the public sector – as well as its evolution over time during the period following its independence. The paper concludes that during the post-Soviet period, the Belarusian economy evolved from a quasi-Soviet system based on state property, state planning, support to inefficient enterprises and the massive redistribution of funds to a more flexible hybrid model where the public sector still remains the core of the economy. The case of Belarus shows that presently there is no appropriate theoretical perspective which, in an unmodified form, could be applied to study this type of economic system. Therefore, a new perspective based on an already existing but updated approach or a multidisciplinary approach that incorporates the duality of the Belarusian economy is required.
Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991.
As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax? These questions are discussed in the mBank-CASE seminar Proceeding no. 163, written by Dmitri Jegorov, deputy general secretary of the Estonian Finance Ministry, who directs the country’s tax and customs policy, Dr. Anna Leszczyłowska of the Poznań University of Economics and Business and Aleksander Łożykowski of the Warsaw School of Economics.
The trade war between the U.S. and China began in March 2018. The American side raised import duties on aluminum and steel from China, which were later extended to other countries, including Canada, Mexico and the EU member states. This drew a negative reaction from those countries and bilateral negotiations with the U.S. In June 2018 America, referring to Section 301 of its 1974 Trade Act, raised tariffs to 25% on 818 groups of products imported from China, arguing that the tariff increase was a response to years of theft of American intellectual property and dishonest trade practices, which has caused the U.S. trade deficit.
Will this trade war mean the collapse of the multilateral trading system and a transition to bilateral relationships? What are the possibilities for increasing tariffs in light of World Trade Organization rules? Can the conflict be resolved using the WTO dispute-resolution mechanism? What are the consequences of the trade war for American consumers and producers, and for suppliers from other countries? How high will tariffs climb as a result of a global trade war? How far can trade volumes and GDP fall if the worst-case scenario comes to pass? Professor Jan J. Michałek and Dr. Przemysław Woźniak give answers to these questions in the mBank-CASE Seminar Proceeding No. 161.
This Report has been prepared for the European Commission, DG TAXUD under contract TAXUD/2017/DE/329, “Study and Reports on the VAT Gap in the EU-28 Member States” and serves as a follow-up to the six reports published between 2013 and 2018.
This Study contains new estimates of the Value Added Tax (VAT) Gap for 2017, as well as updated estimates for 2013-2016. As a novelty in this series of reports, so called “fast VAT Gap estimates” are also presented the year immediately preceding the analysis, namely for 2018. In addition, the study reports the results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). It also scrutinises the Policy Gap in 2017 as well as the contribution that reduced rates and exemptions made to the theoretical VAT revenue losses.
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The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Resume
• Real GDP growth slowed down due to problems with access to electricity caused by the destruction of manoeuvrable electricity generation by Russian drones and missiles.
• Exports and imports continued growing due to better logistics through the Ukrainian sea corridor and road. Polish farmers and drivers stopped blocking borders at the end of April.
• In April, both the Tax and Customs Services over-executed the revenue plan. Moreover, the NBU transferred twice the planned profit to the budget.
• The European side approved the Ukraine Plan, which the government adopted to determine indicators for the Ukraine Facility. That approval will allow Ukraine to receive a EUR 1.9 bn loan from the EU in May. At the same time, the EU provided Ukraine with a EUR 1.5 bn loan in April, as the government fulfilled five indicators under the Ukraine Plan.
• The USA has finally approved an aid package for Ukraine, which includes USD 7.8 bn of budget support; however, the conditions and timing of the assistance are still unknown.
• As in March, annual consumer inflation amounted to 3.2% yoy in April.
• At the April monetary policy meeting, the NBU again reduced the key policy rate from 14.5% to 13.5% per annum.
• Over the past four weeks, the hryvnia exchange rate has stabilized in the UAH 39-40 per USD range.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
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how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
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how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
3. This report is part of the CASE Network Report series.
The CASE Network is a group of economic and social research centers in Poland, Kyrgyzstan,
Ukraine, Georgia, Moldova, and Belarus. Organizations in the network regularly conduct
joint research and advisory projects. The research covers a wide spectrum of economic and
social issues, including economic effects of the European integration process, economic
relations between the EU and CIS, monetary policy and euro-accession, innovation and
competitiveness, and labour markets and social policy. The network aims to increase the
range and quality of economic research and information available to policy-makers and civil
society, and takes an active role in on-going debates on how to meet the economic challenges
facing the EU, post-transition countries and the global economy.
The CASE network consists of:
• CASE – Center for Social and Economic Research, Warsaw, est. 1991,
www.case-research.eu
• CASE – Center for Social and Economic Research – Kyrgyzstan, est. 1998,
www.case.elcat.kg
• Center for Social and Economic Research – CASE Ukraine, est. 1999,
www.case-ukraine.kiev.ua
• CASE – Transcaucasus Center for Social and Economic Research, est. 2000,
www.case-transcaucasus.org.ge
• Foundation for Social and Economic Research CASE Moldova, est. 2003,
www.case.com.md
• CASE Belarus – Center for Social and Economic Research Belarus, est. 2007.
CASE Reports No. 74/2007 3
6. The Authors
Irina Sinitsina (coordinator), Ph.D., is a leading researcher at the Institute of
Economics, Russian Academy of Sciences (Moscow, Russia) and CASE's permanent
representative in Russia, as well as a member of the Board of Directors of CASE -
Transcaucasus in Tbilisi, Georgia. She specializes in the analysis of social policy,
including social security systems, social services, labour market, income and
employment policies in Russia, Poland, Georgia, Ukraine and other FSU and CEE
countries. She has also carried out extensive comparative macroeconomic studies of the
economies in transition in these countries. Irina Sinitsina has participated in many
international advisory projects on fiscal and social policy in Georgia and Ukraine.
Alexander Chubrik is an expert at the Research Centre of the Institute for Privatisation
and Management (IPM-CASE Research Centre). He is also an Executive Editor of the
Belarusian Economic Outlook (BEO) and the Belarusian Monthly Economic Review
(BMER). He specializes in macroeconomics and private sector development. Alexander
Chubrik has graduated from Belarussian State University (M.S., Economics) in 2000
and is currently a lecturer and a PhD student at the same University.
Irina Denisova is a Lead Economist at the Centre for Economic and Financial
Research (CEFIR) at New Economic School (NES), Moscow, Russia. She is also a
professor at the New Economic School and a researcher at the Central Institute of
Economics and Mathematics (CEMI), Russian Academy of Science. Her research
interests are focused on labor markets, microeconomics of unemployment,
effectiveness of government labor market programs, poverty and inequality, and social
policy issues. At CEFIR, Irina Denisova has led projects on the impact of active labor
market programs in transition economies and the development of unemployed
profiling procedures as a basis for planning and implementation of active labor market
programs. A recipient of Swedish Professorship Award for CEFIR and NES (2000-
2002) as well as of numerous research grants from leading research foundations.
Vladimir Dubrovskiy is a senior economist and a member of supervisory board of
CASE Ukraine. Mr. Dubrovskiy specializes in the issues of business climate, enterprise
restructuring, privatization, political economy, institutional economics, governance,
and corruption. His recent work includes participation in developing the World Bank
Country Economic Memorandum, as well as in GDN study "Understanding Reforms".
Vladimir is also managing CASE Ukraine partnership with the World Economic
Forum. He is an author of several books and studies on the process of transformation
6
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
7. in Ukraine, including assessments of the economic consequences of privatization
contracted by the State Property Fund of Ukraine.
Marina Kartseva is an economist at the Centre for Economic and Financial Research
(CEFIR) in Moscow, Russia. She specializes in labor economics and social policy.
Irina Makenbaeva is a member of the Board of Directors of CASE-Kyrgyzstan. She
also works as an associate professor of Kyrgyz State National University and Kyrgyz-
Russian Slavonic University, and as a coordinator of the World Bank training
programs for government officials in Kyrgyzstan. Areas of her scientific interests
include macroeconomics and labor economics. Ms. Makenbaeva studied at Kyrgyz
State University and received her Ph.D. degree at Leningrad (St. Petersburg) Institute
of Finance and Economy. In 2003-05, she has participated in the development of the
UNDP National Strategy for Poverty Reduction in Kyrgyzstan.
Magdalena Rokicka is a researcher at CASE (Warsaw). A graduate of University of
Warsaw (2001, M.A. in International Economics), she has participated as a researcher
in several international projects which included studying consequences of industrial
restructuring in Russia and Ukraine, and non-tariff barriers for Ukrainian exports to
the EU. Magda's research interests are focused on applied macroeconomics, gender
inequalities and social issues, and economics of education.
Michael Tokmazishvili is the Head of Macroeconomic Division - Budget office,
Parliament of Georgia and a Senior Researcher at CASE-Transcaucasus (Tbilisi).
Holds a Ph.D. in Economics (1995, Tbilisi State University). He is an economist and
researcher with over ten years' experience of participating in international projects:
in 1997-1999 he worked with the World Bank as Country Program Manager in
Georgia. With CASE, Mr. Tokmazishvili worked as a consultant on technical
assistance for enterprise level in restructuring, revitalization and antimonopoly in
Georgia, and in Post-privatization Development Center Program.
CASE Reports No. 74/2007 7
8. Current report aims to identify major existing gaps in the four socio-economic
dimensions (economic, human, environmental, and institutional) and to reveal those
gaps which could potentially hinder social and economic integration of neighbor
states with the EU. To achieve this, the authors aim to assess the existing trends in the
size of the gaps across countries and problem areas, taking into consideration the
specific origin of the gap between EU15/EU12, on the one hand, and FSU republics,
EU candidates and West Balkan countries, on the other hand.
The paper is structured as follows:
(1) An analysis of the historic roots and origins of the development gap, and its
evolvement over time.
(2) A review of literature sources, draft analysis of primary statistical data, and
qualitative explanations of gaps and divergences in selected development issues
across four socio-economic dimensions:
• level of economic development and convergence rates based on real GDP
(application of methodology testing β and σ convergence to the set of
countries analyzed);
• quality of life and its components (poverty, inequality, health status and health
care, access to fresh water and sanitation facilities, subjective perceptions of
well-being);
• human capital and labor market development, including level of education
and public spending on education, its accessibility and quality, main
differences in labor market development (employment participation rates and
levels of unemployment, new jobs creation and labor protection legislation);
• innovation potential, including R&D, information and communication
technologies, and institutional environment;
• environmental performance in terms of environmental stresses, efforts aimed
at their reduction, and institutional capacity;
• business climate, political institutions, and other institutional indicators
(econometric analysis).
8
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
ABSTRACT
9. (3) A test econometric analysis of development gaps across selected dimensions by
using a Principal Components Method (PCM). The results are further presented
in the form of ranks of countries analyzed reflecting their distances from EU15
in respective aggregate averages.
Special attention is paid to gender-related development issues. Respective issues
in human capital and labor market study, as well as variables included into PCM
analysis were supplemented with relative gender data. Several preliminary
conclusions finalize the report.
9
ASSESSING THE DEVELOPMENT GAP
CASE Reports No. 74/2007
10. Following the UN approach to monitoring development processes, in this Work-
Package we attempt to assess the development gap across four dimensions: (i)
economic, (ii) human, (iii) environmental, and (iv) institutional. In each dimension we
specify the key sub-themes:
• in economic dimension: (i) Production level, (ii) Economic growth, (iii) openness
and infrastructure, (iv) innovation potential;
• in human dimension: (i) Poverty, (ii) Human security, (iii) Education, (iv) Health
(v) Equity/social exclusion (vi) Welfare and quality of life;
• in environmental dimension: (i) State of environmental systems, (ii) Reduction
of environmental stresses, (iii) Institutional capacity to respond to
environmental challenges;
• in institutional dimension: (i) Governance, (ii) Democracy, civil society and
public participation.
Major tasks of Work-Package 1:
(1) to identify the major existing gaps in the four socio-economic dimensions
and their origin as well as to assess the scope of the development lag;
(2) to identify those existing gaps which could potentially hinder social and
economic integration of neighbor states with the EU, and the most urgent
problems to be solved in National Development Strategies;
(3) to assess the existing trends in the size of the gaps across countries and
problem areas, taking into consideration the specific origin of the gap
between EU15/EU12, on the one hand, and FSU republics, EU candidates and
West Balkan countries, on the other hand.
Geographical dimension of analysis
The geographical scope of the analysis includes transition countries located to the
East and South-East of the EU borders which have not acquired a status of an EU
Member. These include groups of countries on different stages of cooperation with the
EU: candidates to EU membership, potential candidates (West Balkan countries), the
10
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
1. INTRODUCTION
11. six Eastern European countries participating in European Neighborhood Policy
(ENP) – Eastern European Neighbors (EEN), Russia with a status of a strategic
partner in the “Common European Economic Space”, and other CIS countries not
participating in ENP.
The region analyzed is large and economically diversified. Its subgroups of
countries differ in their levels of economic development, institutions, industrial
structure, and progress achieved in market-oriented reforms. According to the latest
(July 2006) World Bank country classification all six EENs are included into the
group of lower-middle income countries, with Russia belonging to upper-middle-income
group. Among transition countries which have recently (both in 2004 and
2007) become members of the EU (NMS), only Slovenia belongs to the group of high-income
economies, while Bulgaria stays on the opposite pole, remaining in the group
of lower-middle-income economies.
11
ASSESSING THE DEVELOPMENT GAP
The overall geopolitical taxonomy of the region's countries with respect to per capita income
looks as follows:
Country
group
High-income
economies
Notes:
Shown in brackets: GNI per capita, Atlas method (current US$), from World Development Indicators
database, World Bank, 1 July 2006.
Turkmenistan is not included in our further analysis due to a lack of reliable country data.
In further analysis, in some cases (notably in calculating the rates of income convergence) we include
Armenia, Azerbaijan, Georgia, Kyrgyzstan, and Moldova into the group of CIS low-income countries; and
Belarus, Russia, and Ukraine into the group of CIS middle-income countries, according to the previous
World Bank classification.
CASE Reports No. 74/2007
Upper-middle-income
economies
Lower-middle-income
economies
Low-income
economies
EU15
EU15
(33235)
NMS
Slovenia
(17350)
Czech Republic (10710),
Estonia (9100),
Hungary (10030),
Latvia (6760),
Lithuania (7050),
Poland (7110),
Romania (3830),
Slovak Republic (7950)
Bulgaria (3450)
Candidates
Croatia (8060),
Turkey (4710)
Macedonia, FYR (2830)
Other
West
Balkans
Albania (2580),
Bosnia & Herzegovina ( 2440),
Serbia& Montenegro (3280)
EEN
Armenia (1470),
Azerbaijan (1240),
Belarus (2760),
Georgia (1350),
Moldova (880),
Ukraine (1520)
Other CIS Russian
Federation (4460)
Kazakhstan (2930)
Turkmenistan
Kyrgyz
Republic (440),
Tajikistan (330),
Uzbekistan (510)
12. The table implies that West Balkans, as well as Kazakhstan, are very close to EEN
countries. Croatia, Turkey and Russia surpass EENs in terms of per capita income.
The rest are low-income CIS countries that belong to the group of the Region’s
poorest. Thus, geopolitical location could serve as a good predictor of the level of
economic development. The groups’ summary figures, indicating their positions in
population and per capita income relative to the Region’s totals, are presented below:
Geopolitical groups
Average GNI per capita,
Atlas method
(current US$), 20051
Population (2005),
million people
Major results and structure of the report
Population 2005
Region=100
(4) An analysis of the historic roots and origins of the development gap, and its
evolvement over time.
(5) A review of literature sources, draft analysis of primary statistical data, and
qualitative explanations of gaps and divergences in selected development
issues across four socio-economic dimensions:
• level of economic development and convergence rates based on real GDP
(application of methodology testing β and σ convergence2 to the set of
countries analyzed);
• quality of life and its components (poverty, inequality, health status and
health care, access to fresh water and sanitation facilities, subjective
perceptions of well-being);
• human capital and labor market development, including level of education
and public spending on education, its accessibility and quality, main
differences in labor market development (employment participation rates
and levels of unemployment, new jobs creation and labor protection
legislation);
• innovation potential, including R&D, information and communication
technologies, and institutional environment;
12
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
1 GNI per capita (formerly GNP per capita) is the gross national income converted to U.S. dollars using the
CASE Reports No. 74/2007
World Bank Atlas method, divided by midyear population.
2 Barro, R., Sala-i-Martin, X. (2001). Economic Growth, Cambridge, MA: MIT Press.
GNI 2005
Region=100
NMS 7048.5 102,3 21.8 36.5
Candidates 4851.3 79,1 16.8 19.5
West Balkans
(Potential candidate) 2920.3 15,2 3.2 2.3
EEN 1590 76,9 16.4 6.2
Other CIS upper-middle
4460 143.2 30.5 32.4
income (Russia)
Other CIS 1167.4 53,4 11.4 3.2
13. • environmental performance in terms of environmental stresses, efforts
aimed at their reduction, and institutional capacity;
• business climate, political institutions, and other institutional indicators
(econometric analysis).
(6) A test econometric analysis of development gaps across selected dimensions
by using a Principal Components Method (PCM). The results were further
presented in the form of ranks of countries analyzed reflecting their distances
from EU15 in respective aggregate averages.
(7) Special attention was paid to gender-related development issues. Respective
issues in human capital and labor market study, as well as variables included
into PCM analysis were supplemented with relative gender data.
Sources of statistical and other data
Current analysis is based on the extensive body of literature describing and analyzing
differences in levels of economic and institutional development, industrial structure,
and progress in market-oriented reforms among countries of the region. A large portion
of comparative worldwide and regional studies is provided by World Bank reports and
background papers. Another important source of information, as well as of appropriate
methods of analysis are comparative studies on human development across regions and
subregions provided by UNDP. Research provided by global and European centers on
various aspects of transition process (CEPS and other European networks, World
Economic Forum, CATO institute, etc.) has also proved to be of high value.
In order to ensure comparability, most of raw statistical data were provided by
online databases supported by international organizations: the World Bank World
Development Indicators database, UNICEF, UNCTAD, UNESCO, ITU, EBRD, IFC and
IMF databases, a number of statistical data collections supported by the UN Statistics
Division, including the database of Millenium Development Goals Indicators, etc.3
Current research would hardly be possible without an extensive use of:
• a wide set of composite indices measuring various aspects of institutional
development (World Economic Forum’s Global Executive Opinion Survey, the
World Bank/IFC Enterprise Survey, the World Bank’s Cost of Doing Business
survey, The Freedom House „Freedom in the World“ ratings, and other indices
provided by international NGOs);
• a widely known and often referred to UNDP approach to measuring human
development, including Human Development Index (HDI) and Human Poverty
Index (HPI);
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ASSESSING THE DEVELOPMENT GAP
3 http://millenniumindiators.un.org/unsd/mi/mi_series_list.asp
CASE Reports No. 74/2007
14. • UN sustainable development indicators and underlying methodology.
• comprehensive environmental indicator sets permitting cross-national
comparisons, produced by Yale Center for Environmental Law and Policy and
Columbia University4;
• the Knowledge Assessment Methodology (KAM) developed by the World Bank
that measures a country’s ability to generate, adopt and diffuse knowledge5;
• a dataset of World Values Survey, the most comprehensive and wide-ranging
survey of human values ever undertaken6.
Despite this substantial background of research and at first glance abundant body
of statistical information, we faced a serious problem of comparable data availability
for our primary research object – EENs, Russia, FSU and West Balkan countries. This
is due to the following reasons.
First, in the majority of FSU countries, statistical reporting formats and methods
of data collection are still not adapted completely to uniform international standards,
resulting in incomparability of datasets. Thus often seemingly available data could not
be incorporated into our database, with the result that the datasets used are patchy
and incomplete.
The existing incomparability of datasets between EUROSTAT and other databases
(e.g. TransMONEE database) did not allow in most cases to use the extensive
EUROSTAT data system with its well developed integrated indicators’ structure for
our comparative research, as we initially planned to.
Second, omissions of data for several countries, especially those that recently
underwent war conflicts, in many regular statistical datasets (e.g. WDI) often could
not be compensated by data provided by other international organizations in view of
their incomparability (e.g. difference by several percentage points). Thus, in some
cases we had to refer to expert assessments (from special publications or interviews).
Data omission is the main reason why several important variables are missing
from the aggregate PCM analysis. In some cases, in order to avoid the exclusion of a
country from this analysis, we had to fill in the missing data from other sources, but
only when we were able to check the respective data on comparability. In cases when
the relevant data were not available (which was most often the case with other CIS
countries or West Balkans), we calculated final average ratings omitting the missing
dimension for this specific country.
14
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
4 The 2005 Environmental Sustainability Index Report, available at www.yale.edu/esi.
5 World Bank Knowledge Assessment Methodology (http://info.worldbank.org/etools/kam2/KAM_page5.asp)
6 www.worldvaluessurvey.org/
CASE Reports No. 74/2007
15. Third, a lack of comparable time series of data for several countries (e.g. some of
EENs or republics of former Yugoslavia) did not allow us to provide a sound statistical
background for trends in the evolvement of specific gaps in the course of transition.
Thus, in some cases, we were forced to rely on more aggregate indicators available or
on anecdotal examples.
Methods tested
Aiming to produce a more or less clear picture of most vivid and critical existing
differences in countries’ development, based on sets of indicators and indices
available, we involved a variety of methods tested by other researchers.
The methods used include: (1) a descriptive comparative analysis of the raw data
indicators, (2) correlation analysis between the available variables, (3) econometric
analysis of composite indicators characterizing specific dimensions, (4) analysis of β
and σ convergence between per capita income in selected country groups, and (5)
methods of factor analysis (Principal Components Method). All of methodologies
mentioned above have certain advantages and deficiencies in terms of data coverage
or difficulties of results interpretation.
PCM allows mapping from the space of raw indicators (which are often highly
correlated with each other) into a space of principal components (which are
orthogonal to each other). To come up with a measure of a gap along each of the
dimensions, we estimated the first two principal components based on the variables
that characterize the dimension. The first two components in the majority of cases
explain the main variation in the raw indicators.
The principal components, being the weighted sums of the raw indicators, allow
to reduce the dimensionality of analysis. Application of PCM is also justified in our
case since it makes the discussion of inter-country variation more tractable by
allowing to identify the clusters of countries based on the distance from the EU along
the chosen dimensions. The components are then used to measure distances from the
EU15 average which, in turn, are converted into ratings of countries in terms of their
closeness to the EU. As a result, the ratings along the nine dimensions characterize
the EU-average gap for each of the neighboring countries.
We use averages for EU15 as a base for comparisons assuming that this group of
countries (despite being quite heterogeneous) still provides a more homogenous
background than it would be if we used the EU27 group. Another point is that we can
provide additional comparisons on relative position of NMS, which are very divergent in
many instances and display quite manifold characteristics across specified dimensions.
The current draft report is in fact a first stage of the total work, representing rather
an effort aimed at data collection and the preliminary assessment of current inter-
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ASSESSING THE DEVELOPMENT GAP
CASE Reports No. 74/2007
16. country differences (gaps) across selected dimensions. This is the reason why we tested
different approaches to data analysis (descriptive, statistical, econometrical), not
necessarily mutually integrated. At this stage of work we also have not managed to
provide an in-depth analysis of important interrelations between various dimensions,
including one of the most important ones – the role of institutions in specific spheres
of social and economic development. Instead, we performed an analysis of major
differences in institutional development across analyzed country groups. A more
aggregated approach is to be provided in the course of the second year research.
The draft report is organized as follows: a historical background is followed by the
analysis of convergence trends in per capita incomes under transition, an exploration
of most important differences (gaps) between countries across specific dimensions of
development (quality of life, human capita, innovation, environment, and
institutions), with an application of PCM for measuring development gaps in different
dimensions concluding the report. At the current stage of analysis we felt that it would
be premature to draw final policy recommendations: for that, an in-depth analysis of
interrelations between gaps in various dimensions is yet to be completed, and a better
integration with other WPs is required. Thus we finalize the current intermediate
report with a brief summary of results of our data analysis and the preliminary
assessment of the existing gaps.
16
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17. 1I. ORIGINS OF THE
DEVELOPMENT GAP
A development gap between present CIS countries (and Eastern Europe in
general) and Western Europe was in place at least since the 13th century7. It became
quickly widening mostly in the course of the Industrial Revolution, starting from the
19th century. However, the reasons for inability to catch up within almost two
centuries were rooted deeply in history.
By the beginning of the 19th century, before the Industrial Revolution, most of FSU
countries became parts of the Russian Empire. Since then, despite multiple territorial
and border changes, these countries have been developing under a direct impact of
Russian (later Soviet) institutions and largely shared a common economic history.
The USSR launched a large-scale forced industrialization in 1930s-60s, but despite
desperate attempts failed to overcome the development gap: between late 1920s and
late 1960s, the main goal of modernization was military superiority rather than
development per se. Although successful in fighting illiteracy and creation of modern
industries, the Soviet economic policy generated enormous distortions and
inefficiencies. The latter caused the gap widening again in 1960s because of the
USSR’s failure to meet the challenges of post-industrialization.
Following the USSR breakdown at the end of 1991 and the emergence of post-
Soviet countries, a profound economic and political crisis, accompanied by armed
conflicts in some territories have severely damaged physical and human capital of the
respective countries contributing to a deepening of the development gap during the
first years of transition.
II.1. Some theoretical reasons
Following North8, we consider persistent development gap as caused primarily by
institutional factors. Institutional gap, in turn, was most probably primarily related to
17
ASSESSING THE DEVELOPMENT GAP
7 Author is grateful to Gennadi Poberezny for his kind help in data mining.
8 North, D.C. (1991). ‘Institutions’, The Journal of Economic Perspectives, Vol. 5, No. 1, pp. 97-112.
CASE Reports No. 74/2007
18. the abundance of natural resources, initially arable land. Among other important
factors discussed in the literature we also consider a lack of traditions of urban self-governing,
and remoteness from the sea.
There are at least four factors tending to impede the development of resource-abundant
countries and therefore make the resource abundance a “mixed blessing” (a
“resource curse”).
1. Macroeconomics. Export of resources or raw materials tends to appreciate the
domestic currency comparing to foreign ones, and in this way make domestic
production of more sophisticated goods and services non-competitive at the
world market, or even at the domestic market (so called “Dutch disease” in the
narrow meaning)9. This factor was hardly important in the case of Russia, since
its historically inherited extent of foreign trade was relatively small10.
2. Policies. Rents stemming from natural resources allow the authorities to
postpone the necessary reforms, neglect important components of development,
such as education and governance, etc.11 This factor seems to be particularly
relevant to the case in question.
3. Political economy. Natural resources are sources of rents. On the one hand, they feed
the rent seeking aspirations and respective interests, which, in turn, tend to divert
human and financial resources from productive activities12. On the other hand,
competition for rents not only results in dissipation of rents themselves, but also
brings overall insecurity. Prevention of such a competition may need an authoritarian
arbiter to be in place, which brings all of the fallacies of authoritarianism13.
4. Institutions. Property rights are needed to protect the renewable natural
resources from devastating exploitation that can lead to their exhaustion14.
However, the rights over natural resources are inherently somewhat weaker
than the ones established over the outputs of various kinds, including fixed assets
and other capital goods.
Property rights under feudalism become eventually legitimized by protection
against plundering. This was the case in the medieval Western Europe, as well as in the
Kievan Rus’. But this reason lost its force after the Tartar-Mongol invasion (mid 13th
18
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
9 Sachs J.D., Warner A.M. (2001). “The curse of natural resources”, European Economic Review, Vol. 45, pp. 827-838.
10 In 1850 Russian exports per capita were 23 times lower than in Great Britain, and 2.7 times lower than in
Spain. Twenty years after it has increased almost 4.5 times, but still remained 4.4 times less than in Germany.
11 Gylfason, T. (2001). “Natural resources, education and economic development”, European Economic Review,
CASE Reports No. 74/2007
Vol. 45, May, pp. 847-859.
12 Murphy, K., Shleifer, A., Vishny, R. (1993). “Why Is Rent-Seeking So Costly to Growth?” American Economic
Review, Vol. 83, pp. 409-14.
13 Dubrovskiy, V., J. Szyrmer, W. Graves III et al. (2007). “The Reform Driving Forces in a Rent-Seeking Society:
Lessons From the Ukrainian Transition”, forthcoming in Understanding Market Reforms, Palgrave Macmillan.
14 Demsetz, H. (1967). “Toward a theory of property rights”, American Economic Review, Vol. 75, pp. 332- 337.
19. century) onward. Instead, in the Muscovite Rus’ the abundant lands were granted to
aristocrats along with titles as a reward for their service to a Tsar. Tsar’s discretionary
power therefore became the only source of legitimacy for land ownership.
In the case of arable land, there was at least one more important factor. The
landlords needed labor to cultivate their land, and serfdom was a means to make this
labor cheaper. But in Western Europe it could be partly substituted by a sort of
“cartel” of landowners that were almost exclusive employers of those times. When
labor became scarce because of wars and epidemic diseases, such a cartel took the
form of legal wage limitations in agriculture – which, however, stimulated the
urbanization. On the other hand, under land abundance the peasants had an
alternative of resettling to the virgin lands, thus in Russia serfdom had no alternative.
In Western Europe, cities served as shelters for the peasants escaped from serfdom
and the region has inherited an ancient liberal democratic tradition of self-governing
city-states. Competition for military superiority characteristic for Western Europe
could be won only by technological progress, so the “arms race” between states,
duchies, and cities became a powerful engine for development. New weapons’
production required advanced technologies that were mostly developed in the cities.
In the agrarian land-abundant empires (like the Russian one), the cities were
rather military and administrative centers representing very strong central
authorities. Their citizens did not enjoy more freedoms than other populace, and
never constituted a sizable part of the whole population. Until the invention of
firearms, there were no effective means of fighting the nomads, hence technical
advance did not make much difference. For these reasons, the agrarian empires of the
past, although often richer and far more advanced in arts and science than medieval
Western European countries, nonetheless failed to develop modern institutions that
later on allowed Western Europe to outperform them in the long run.
Finally, several scholars15 emphasize proximity to the sea coast as an important
factor of economic, and especially institutional, development. They associate
proximity to the sea with better conditions for trade, due to lower cost of sea
transport, and its lesser vulnerability to plundering, extortion and other kinds of trade
barriers. In this sense, Western Europe is a unique geographic region with none of the
cities located in more than 300 kilometers from the sea coast16 and plentiful of rivers
providing convenient ways to sea ports. Ancient Russian self-governing cities-states of
Pskov and Novgorod were in this sense similar to their Western European
counterparts and trade partners. Unlike these, most of the territory of Muscovite Rus’
but sub-polar regions had difficult access to sea, hence needed to lean on land trade.
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ASSESSING THE DEVELOPMENT GAP
15 Mellinger, A.D., Sachs J.D., Gallup J.L. (1999). ‘Climate, Water Navigability, and Economic Development’,
Center for International Development at Harvard University. CID Working Paper No. 24.
16 Gaydar, Ye.T. (2005). Rossiya v mire: Ocherki ekonomicheskoy istorii. Moscow, Delo.
CASE Reports No. 74/2007
20. II.2. History of the development gap
Before the Industrial Revolution economic growth was very slow worldwide. Due
to this reason the countries that had modernized earlier have outperformed the others
in the beginning of 19th century. At the same time, industrialization gave a chance to
many other countries to catch up. Therefore, history of the development gap may be
divided in two periods: before and after the Industrial Revolution.
Why the industrialization was delayed
Although initially the Kievan Rus’ of IX-XIII centuries has been rather following
the European path, later on land abundance, plundering by the Tartars and Mongols,
and then exposure to Genghis Khan’s empire (succeeded by the “Golden Horde”)
institutions have turned it to a different path for almost three centuries. The defeat of
the Horde provided the Muscovite Rus’ with unlimited access to virgin fertile lands,
which resulted in institutional and technological stagnation and even regress. In
particular, serfdom that was rather uncommon in the Kievan Rus’ has become much
more severe compared to Western Europe.
Fig. 2.1. Population density in Europe by 1700
Unlike competition for overseas colonies among Western European countries, the
Russian type of expansion to the East did not require any advance over other European
states, since they did not compete over there. On the contrary, Russian expansion to
the West and South did require some technological advance, because here Russia had
to fight against the Europeans, primarily Swedes and Poles, and the Ottoman Empire.
20
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
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Source: http://milntj34.rivm.nl/website/intdata/hyde2005/viewer.htm
21. Still, despite Peter the Great’s attempt of institutional and technological catch-up in the
beginning of the 18th century, by the beginning of Industrial Revolution the Russian
Empire remained mostly agrarian. It remained such for quite a long period of time
with less than one percent of urban population compared to fifteen percent in the
Western Europe, and 5.65% in the Eastern Europe by 1720.
Authoritarianism was an essential part of any agrarian empire, and Russia was not
an exception, remaining an absolute monarchy until the early 20th century. Serfdom
that lasted until 1861 made labor mobility close to zero. Instead, modern industries
were run mostly by the state that, in its turn, was also using mostly forced labor. At the
same time, the bureaucracy and other institutions of rational rule were largely formal,
while the actual rules remained inherited from the patrimonial state17. The rule of law
and other institutions needed for complex transactions going beyond simple bazaar
exchange remained weak, so the financial markets were non-existing. Therefore, not
only the industrialization did not start, but the most necessary preconditions for a
“market capitalist” kind of industrialization were missed along with driving forces for it.
Fig. 2.2. GDP per capita in Russia (FSU) compared to Europe and Greece
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1
1600
1870
1928
1931
1954
1957
1960
1963
1966
1969
1972
1975
1978
By this time the Russian Empire was already one of the largest in the world by its
territory having, however, very little density of population even in its most developed
European part (Fig. 2.1), abundant with virgin lands, having a severe serfdom and
with very weak incentives for entrepreneurship. Examples of bourgeois revolutions
21
ASSESSING THE DEVELOPMENT GAP
17 Volkov, V. (2000). “Patrimonialism versus Rational Bureaucracy: on the Historical Relativity of Corruption”
[in:] S. Lovell, A. V. Ledeneva, and A. Rogachevskii (ed.), Bribery and Blat in Russia: Negotiating Reciprocity
from the Middle Ages to the 1990, School of Slavonic and Eastern European Studies, University of London.
McMillan.
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1934
1937
1940
1948
1951
1981
1984
1987
1990
1990 Int'l Geary-Khamis $
Greece
Western Europe (29 countries)
FSU/Russia
22. that took place in France and other European countries worked as a warning against
liberation that could potentially be subversive to privileges of aristocracy.
The population remained mostly rural, with less than one percent living in towns
– compared to a 25% of urban population in Western Europe, and about 10% in
Eastern Europe (1820). The Russian Empire has managed to reach a 15% level of
urbanization (the Western European level of 1700) only by the turn of the 19th century.
The quality of Russian towns was also strikingly different: there was nothing in place
comparable to the freedoms of Western cities and towns.
Fig. 2.3. GDP per capita in Russia (FSU) relative to ones of Western Europe, Eastern Europe,
and Greece
160%
140%
120%
100%
1
1600
80%
60%
40%
As long as modern institutions did not emerge from the grassroots, their
establishing through reforms was the only way to catch up. In the late 17th century
Peter’s the Great attempt of changing the societal norms by a forceful imposition of
Western-like legislation and bureaucratic rule in order to catch up with the most
developed Western European countries was a turning point in the institutional history
of Russia. Still, contrary to the reforms’ purposes, this attempt has not really
destroyed the patrimonial traditions. Instead, the increased gap between the natural
and formal law made almost everyone a lawbreaker. This, in turn, has created vested
interests in the further excessive complication and toughening of legislation;
increasing the scope of bureaucratic discretion; preservation and amplification of
ambiguity and contradictions of legislation, etc.
22
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20%
1870
1928
1931
1934
1937
1940
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
FSU/Western Europe, % FSU/Eastern Europe, % FSU/Greece, % Greece/Western Europe, %
23. These distortions resulted in traditions of low respect for and abeyance of law. The
law enforcement became to a large extent an instrument for exercising power rather
than maintaining the law and order in their Western meaning; bureaucrats in the
respective positions were rather powerful state executives endowed with vast political
and economic power; vertical (hierarchical) bargaining was widespread as a
substitute to the impracticable formal rules, etc. This institutional legacy in fact
created a background for a limited capacity of law enforcement and implementation,
that complicated introduction of any new formal rules in the respective countries.
Generally, and apart of the abovementioned specifics, the formal institutions in
Russia of the early 19th century were to some extent comparable to the Western
European patterns of one or two centuries before. Absolutism in polity, serfdom and
strong estate privileges in social relationships, and weak civil rights were as much
restrictive for economic and social development as they were in Western Europe at
the respective times.
As a result, the Industrial Revolution became delayed in Russia. Consequently,
between 1820 and 1870 average annual growth rates in Russia constituted only 64%
of those in the Western Europe, so the initial gap grew wider.
Modernization in the Russian Empire
Alexander the Second has launched a series of genuine liberal reforms that
appeared to be successful and sustainable. Serfdom was abolished, civil and property
rights strengthened due to the court reform, and local self-governance established.
Still, most of the privileges for nobility were preserved, and peasant communities
remained collectively responsible for tax collection, which made them an instrument
restricting labor migration. Land reform was largely incomplete, so peasants had to
buy out their land plots. All those reasons still prevented rapid urbanization and
industrialization. Probably as a result of these reforms, the growth rates speeded up
by half – but so did the ones in Western Europe, therefore the gap kept widening. Only
in a few decades, by the end of 19th century, the Alexander II reforms yielded their
fruits in terms of economic development.
The first catch-up jump occurred only in the years of 1890-1913. During this
period growth rates were for the first time in history even slightly higher than the ones
in the Western Europe; the share of urban population almost quadrupled. While in
1890 per capita production of iron and steel in Russia was only 11% of the one in
Western Europe, just in ten years it reached 26% (Fig. 2.4). The industrialization has
begun. Literacy rate that has doubled in previous 40 years from 7.4 to 15%, has once
again doubled in 21 years from 1890 to 1911, still remaining, however, twice as low
compared to Great Britain18 of 1840 (Fig. 2.5). During this period the Empire has
become a constitutional monarchy, launched the ambitious Stolypin land reform that
23
ASSESSING THE DEVELOPMENT GAP
CASE Reports No. 74/2007
24. was to create a sort of “open end” at Siberia. Nevertheless, Russia still remained
mostly agrarian country with agrarian sector dominating the economy, while most of
Western European countries were already industrialized.
120
100
80
60
40
20
100
90
80
70
60
50
40
30
20
10
The institutional gap remained almost as wide as it was a hundred years before.
Constitutional restrictions on monarchy were weak and often fake with tsar’s power
remaining basically unconstrained. Estate privileges and various restrictions on the
freedom of migration remained in force. Quality of state governance remained poor
relatively to the growing needs. Rampant corruption and favoritism along with
remaining privileges and vertical mobility restrictions restrained the development of
entrepreneurship. Hence, in general, the Russian Empire was again at least one stage
behind the Western Europe.
Revolution of 1917 and pre-WW2 industrialization
Although most of Western European countries suffered a lot from the First World
War of 1913-1918 and complementing revolutions, the Civil War of 1918-1922 that
followed the Russian revolution of 1917 and communist experiments of the new
government became really devastating. The former Empire lost important territories
(among them, Finland, Poland, Baltic countries, Bessarabia, Western Belarus and a
24
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
18 Great Britain was chosen as a convenient basis for comparisons, since it was a leader of Industrial Revolution,
and also since its borders remained mostly unchanged during the whole period under consideration.
CASE Reports No. 74/2007
Fig. 2.4. Annual production of iron and steel
in Russia /FSU and the rest of Europe
Fig. 2.5. Literacy rate in Russia/FSU and
selected Western European countries
0
1890 1920 1930 1940 1955 1965 1975 1985
Million tons
Western Europe
Eastern Europe
Russia/FSU
0
1840
1846
1852
1858
1864
1870
1876
1882
1888
1894
1900
1906
1912
1923
1929
1935
1947
1953
1959
%
Russia/FSU
Great Britain
Spain
Greece
25. part of Western Ukraine); by 1921 virtually all of industry and most of agriculture
were in ruins, and the Communist regime was unable to substitute deliberately
destroyed market institutions with any other viable system able to provide work
incentives and allocate resources.
As a result, it was at this time that the gap in wealth has hit its lowest point for the
whole period between 1820 and 1990 (Fig. 2.3). Per capita iron and steel production
fell twenty times compared to 1900 and constituted only 1.1% of the Western European
level; per capita energy consumption fell by two-thirds, accounting for just 3.8% of that
in Western Europe. At the same time, the peasants’ communes were destroyed, while
millions of the former peasants went to the army and then settled in the cities, so the
urbanization went up. However, both countryside and cities suffered from starvation.
A short period of NEP that led to a quick economic recovery and an improvement
in living standards only proved the potential of the major driving force of catching-up.
A shade of liberalization by introduction of market institutions, at least in small and
medium-size business, resulted in GDP in 1928 approaching the one of 1913 (while in
per capita terms it was still 7% less). At the same time, in Western European countries
per capita GDP was 19% higher than in 1913 (Fig. 2.2). Thus, the gap still retained:
even after recovery the USSR reached only about one-third of the Western European
average. To compare, during the same time period Greece19 has caught up and
already reached well above one-half – the level that the USSR did not hit even at the
peak of pre-war industrialization (Fig. 2.2. and 2.3).
Further modernization required either abandonment of the Communist ideology
and introduction of modern market institutions, or radical mobilization in line with
this ideology and complete abandonment of economic freedoms. Soviet authorities
have chosen the latter. In the 1930s, the catch-up was based on huge forced savings,
and largely forced labor20. Abundance of human and natural resources other than
land became its main engine. Rapid industrialization occurred at the expense of
devastation of agriculture and huge human costs: the traditional Russian village was
destroyed and replaced by collective and state farms which proved to be highly
inefficient. Thus Communist ideology and central planning combined with totalitarian
management appeared to some extent effective in catching-up development and
recovery: within a historically short period of twelve to fifteen years, an economically
backward country created a modern industrial sector and acquired new technologies
that changed it from an agrarian to an industrial economy.
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ASSESSING THE DEVELOPMENT GAP
19 Greece was chosen as a benchmark due to its relatively low starting point and some cultural similarities
(Orthodox Christian religion) to Russia. It is the only EU-15 country that had the GDP per capita lower than
the one of Russia in 1820.
20 Olson, M. (2000). Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. Oxford University
Press.
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26. Fighting illiteracy appeared arguably the most successful modernization effort
with literacy rate reaching 60% in 1930 (and increasing by 133% within 20 years of
1919-1939) (Fig. 2.5). Higher education expanded rapidly, with enrollment tripled in
1929 comparing to 1913, and once again tripled by 1939 – probably, to some extent,
at the expense of it quality.
While the USSR was moving forward very quickly, the whole of Western Europe
suffered from the Great Depression of 1930S. This, undoubtedly, contributed to Soviet
catching-up efforts (see Fig. 2.3). By 1940 the USSR has reached the level of one-half
of Western European per capita GDP, while producing 63% of the European level of
steel and iron per capita (Fig. 2.4). Hence, this was a period of quick catch-up growth,
although based mostly on forceful mobilization.
Post-war industrialization: the peak of success
The Second World War was extremely devastating for the USSR: its losses
exceeded 52% of total human losses borne by all war participants. However, due to
extraordinary population losses the fall in per capita GDP was relatively small: it has
dropped twice as less as in Western Europe (Fig. 2.2).
The Soviet postwar economic recovery period saw a partial repetition of the
process of primitive accumulation which had been attempted during the first two five-year
plans of 1928–37. Living standards were forced down; millions of peasants were
conscripted, cajoled, or driven by economic necessity into abandoning the land for
work in industry and construction; the slave labor sector was considerably expanded
(e.g. by German POW) – all so that ‘capital’ and labor power could be concentrated in
core sectors of mining, iron and steel, construction, and machine-building21.
A severe resource mobilization brought about substantial results: in 1950 the gap
hit its lowest point with the USSR being only 37.9% less that Western Europe in per
capita GDP (Fig. 2.3). During 1950s the development gap remained pretty stable in
relative terms (with the USSR having per capita GDP around 60% of the Western
European one), although widening respectively in absolute terms. The 1950s were
also a period of rapid industrial growth in both the USSR and the Western Europe.
Still, average growth rate for 1946-1962 (the longest period of continuous growth)
constituted just about 4.25%, while for Germany and Italy the averages for the period
of continuous growth (1946-1973) were 6.4% and 5.5% respectively.
Unlike the market economies, “socialist industrialization” has prioritized heavy
(“basic”) industries that were understood mostly in terms of the “coal and ore era” and
“strengthening the defense capacity of the nation”. These industries were reconstructed
26
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
21 Filtzer, D. (2002). Soviet Workers and Late Stalinism: Labour and the Restoration of the Stalinist System after
CASE Reports No. 74/2007
World War II. Cambridge University Press.
27. in the first instance, so at that moment the production of iron and steel per capita in
the USSR constituted about 90% of the Western European average, just as much as the
latter constituted fifteen years before (Fig. 2.4).
Even more importantly, the Soviet Union’s postwar experience was visibly
different from the rest of Europe not in the rate of economic recovery but in the lack
of institutional response. Where other societies experienced radical reforms or were
reconstituted, the USSR witnessed the rejuvenated reign of Stalinism22. The lack of
institutional reforms in turn prevented modernization and inhibited the quality of
economic growth.
Soviet postwar growth occurred mainly at the expense of efficiency. Already in 1950,
the USSR’s energy consumption per 1 dollar of GDP outpaced Western European one
by 27%. While in Western Europe energy intensity has been permanently and almost
evenly declining at least since 1930 (earlier data not available), in the USSR it has been
steeply increasing until 1970 and then nearly stabilized at the level exceeding the
Western European average of 1930 (Fig. 2.6). The same was true for many other
components of development. For example, while having 23 inhabitants per physician
(compared to 30 in Greece or 72 in the UK) in 1990, the USSR still had infant mortality
three times as high, and life expectancy at birth constituting 65/74 years (male/female)
compared to 75/80 in Greece and 72/78 in the UK respectively.
After 1960s: the decay
Since the late 1950s, a relative GDP per capita gap began steadily widening again
(meaning an even faster increase in the gap in absolute terms) (Fig. 2.3). Since then, a
smoothed trend of differences in the growth rates was permanently negative. Ironically,
this change in trend coincided in time with the enunciation of a well-known Khrushchev’s
slogan “Catch up and overtake the advanced capitalist countries!” (1957) that for a long
time remained an ever-present factor in the economic and social history of the USSR.
In general, the Soviet Union has been still pursuing the industrialization, while the
Western countries have already become post-industrial. The USSR did outperform the
West in per capita production of iron and steel (Fig. 2.4) – but it was not an indicator
of modernity any more. Consumption of other materials, like aluminum or plastics,
became indicative of technological progress. And here the USSR failed to catch up
despite its wasteful technologies and material-intensive economy.
Energy consumption per capita has also “caught up” and remained roughly similar
to the Western European one during the 1960s, indicative of low energy efficiency of
the economy and wasteful resource consumption (Fig. 2.6). But then its growth has
27
ASSESSING THE DEVELOPMENT GAP
22 Harrison, M. (2006). “The Soviet Economy: War, Growth, and Dictatorship”, Paper prepared for the annual
meeting of the Allied Social Sciences Associations, Chicago, IL, 5-7 January, 2007.
CASE Reports No. 74/2007
28. Fig. 2.6. Per capita energy consumption Fig. 2.7. Energy consumption per unit of GDP
3000
2500
2000
1500
1000
500
500
450
400
350
300
250
200
150
100
50
slowed down in the West due to the energy price shock of the mid-1970s, and it has
even declined during 1980s. On the contrary, the USSR saw a 31.5% increase in per
capita energy consumption during 1970th (Fig. 2.6).
Unlike Western Europe, where industrialization was largely driven by
technological progress that increased agricultural productivity and by doing this
released the excess labor, in the USSR industrialization was achieved by plundering
the agrarian sector that remained gravely inefficient. Its inefficiency was further
largely aggravated by collectivization. As a result, the USSR had to become a net
importer of foodstuffs, mostly grain and meat. Remaining in fact an agrarian empire
by its culture and institutions, it became dependent on agricultural imports.
The USSR has never managed to catch up in infrastructure. Poor quality of roads
in Russia is notorious. But even being the world’s leader by railroad mileage, it still
has been lagging far behind the European countries in the density of railway network
(Fig. 2.8). This was, of course, partly due to a low density of population and extremely
large territory of permafrost. However, in terms of telephone lines per capita it was
lagging far behind as well (Fig. 2.9).
Rapid urbanization continued, although at somewhat slower pace, with the USSR
lagging behind the Western Europe. Massive migration was driven mostly by a huge
wealth gap between cities and countryside that appeared due to rapid
industrialization. It was accompanied by a scarcity of entertainment opportunities,
undersupply of goods and services, poor quality of basic public goods, and weakness
of social security in the countryside.
28
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
0
1850 1870 1890 1900 1920 1930 1940 1950 1960 1970 1980 1990
toe
Western Europe
Eastern Europe
Russia/FSU
0
1930 1940 1950 1960 1970 1980 1990
toe
Western Europe
Eastern Europe
Russia/FSU
29. Fig. 2.8. Railroad mileage per 1 sq. mile Fig. 2.9. Number of telephones per capita
10000
1000
100
10
1
Russia/FSU
Great Britain
France
1815
1827
1839
1851
1863
1875
1887
1899
1911
1928
1946
1958
1970
60000
50000
40000
30000
20000
10000
Great Britain
Russia/FSU
Greece
What the communist regime could be praised for is the development of human
capital. Education was the only but important sphere where the USSR has managed
to catch up completely, and in many cases even outperform Western European
countries. Already in 1960 the USSR has reached a literacy rate of almost 100%; still.
it has been lagging behind in terms of university enrollment, as well as, perhaps, in its
quality (at least regarding humanities). However, despite formally high human
capital, the real quality of labor force was rather poor due to weak incentives.
Widespread absenteeism, petty theft, weak technological discipline, and other
deficiencies as well as total mismanagement resulted in excessive actual labor cost
and poor quality of goods and services. The few exemptions were limited mostly to
tightly closed military plants and research divisions.
Also, in terms of “human development” as defined by Welzel & Inglehart23, the USSR
has lagged behind tremendously. These authors argue that human development can be
best measured in terms of the opportunities for self-realization that a society provides
for its members, or the variety of choice that it provides. In the USSR the people were
given very little choice that was often deliberately restricted. In addition to low incomes
and a complete absence of democratic freedoms (factors considered by Welzel and
Inglehart), the choice of goods and services was incredibly poor by any means. The
people were restricted in choosing their occupations, since private entrepreneurship
was prohibited as such; voluntary unemployment or self-employment was subject to
29
ASSESSING THE DEVELOPMENT GAP
23 Welzel, C. & Inglehart, R. (2001). Human development and the ‘explosion’ of democracy. Berlin: WZB
Discussion Paper FS III 01–202,WZ.
CASE Reports No. 74/2007
0
1881
1887
1893
1899
1905
1911
1922
1928
1934
1946
1952
1958
1964
1970
1976
1982
1988
30. criminal prosecution; and those who changed their jobs too often were penalized.
During a long period of time large categories of soviet citizens were deprived of any
choice at all, as peasants under Stalin times. Besides, there were informal quotas
limiting access to high education for Jews, children of the dissidents, victims of purges,
and some other categories. Art, literature, education, and science were placed under a
strict ideological scrutiny; censorship was pervasive and strictly enforced.
Although formally democratic, the USSR was a totalitarian state. Market
institutions were, at most, non-existing, with trading, private property, and
entrepreneurship being outlawed and condemned by most of the public. No formal
estate privileges were in place, but de facto the communist nomenklatura enjoyed
tightly restricted privileged access not only to the goods and services in short supply,
but also to the potential sources of rents.
Social capital in the USSR took a very much specific form of the so-called blat24.
The reputation-based interpersonal networks of informal reciprocal exchange with
favors of access to scarce goods and services penetrated the whole Soviet society.
Remarkably, by the end of the 1980s the relative GDP per capita gap became as
wide as it was in 1913 (Figure 2.3). By that time the idea of ‘overtaking’ was clearly
an illusion, and catch-up itself was failing, with the result that the gap between the
West and the East in Europe was growing again. Moreover, the fact that ‘the success’
that had been obtained was based on an enormous consumption squeeze meant that
for ordinary citizens, even though the per capita income figures might prima facie
suggest progress, their own patterns of consumption remained far behind of what, in
societies increasingly penetrated by images of the West, they aspired to25.
II.3. Differences between Soviet republics
Since the beginning of the Industrial Revolution most of the territories of the
present EEN countries were subject to the Russian Empire’s and later Soviet
institutional environment. They have been modernized under prevailing influence of
Russian/Soviet policies, and the origin of development gap in these countries was
associated mostly with these patterns. However, these countries and territories varied
in maturing and intensity of this influence.
While Eastern edges of present Belarus and Ukraine were directly exposed to the
Russian both formal and informal institutions, in the Caucasus part of the Empire, as
30
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
24 Ledeneva, A.V. (1998). Russia’s Economy of Favours. Cambridge University Press.
25 Haynes M. & R. Husan (2002). “Somewhere Over the Rainbow: The Post-Soviet Transition, the Market and
the Mythical Process of Convergence”, Post-Communist Economies, Vol. 14, No. 3.
CASE Reports No. 74/2007
31. well as in non-Slavic-Orthodox peripheries traditional establishments remained
largely intact, although of course influenced by the Russian institutions. Such parts,
although sometimes better developed than the parent state was, were treated as a sort
of “colonies”, while Ukraine and Belarus considered as “sisters” parts of its mainland.
This tradition, although weakened, remained during the Soviet times and became the
main reason behind persisting differences in the development performance, despite
some deliberate policies of “equalization” conducted by Soviet authorities.
While most of the territories were under the Soviet system for seventy years, the
Western parts of Ukraine and Belarus, and the whole Moldova but the Transnistria, lived
under the Soviets for only 50 years or so, which seems to explain a great deal of their
later economic performance under transition. In particular, as was clearly demonstrated
by Fischer and Sahay, the size of the development gap was directly related to the time
squandered during the socialist experiment26. Certainly, the socialist system in the Soviet
Union differed under Stalin and Khrushchev, both of which differed from Hungarian
socialism or from the Polish socialism of Gomulka, Gierek and Jaruzelski27. The same
was true, albeit to a somewhat lesser extent, for the republics of the FSU.
The USSR was not homogeneous: tremendous spatial differences in various
dimensions of development were inherited from previous times. But despite several
decades of deliberate policies aimed at equalization and unification of standards, the
31
ASSESSING THE DEVELOPMENT GAP
Fig. 2.10. Per capita GDP in FSU Republics (1990 International Geary-Khamis dollars)
12,000
10,000
8,000
6,000
4,000
2,000
0
Armenia
Azerbaijan
Belarus
26 Fischer, S. and Sahay, R. (2000) „The Transition Economies After Ten Years“. IMF Working Paper No. 00/30.
27 Kornai, Janos. (2000). “What the Change of System from Socialism to Capitalism Does and Does Not Mean”,
The Journal of Economic Perspectives, Vol. 14, No. 1, pp. 27-42.
CASE Reports No. 74/2007
Georgia
Moldova
Ukraine
Tajikistan
Turkmenistan
Uzbekistan
Kazakhstan
Kyrgyzstan
Lithuania
Estonia
Latvia
Total Former
USSR
EEN countries Russia Other CIS Baltia
1973
1990
32. differences have rather aggravated (Fig. 2.11). In 1973, the ratio of maximal to
minimal GDP per capita for all Soviet republics was 2.3 times, by 1990 it has
increased by a half, to 3.6 times – with Estonia and Latvia being the leaders, and
Tajikistan and Kyrgyzstan the laggards. However, the six republics that are currently
EEN did not vary that much. Still, the difference between the richest (Armenia) and
the poorest (Azerbaijan) constituted 1.4 times in 1973, while the one between Georgia
and again Azerbaijan increased to 1.6 by 1990. Notably, the growth rates of republics
were quite different, from 37% for Belarus and 15% for Moldova to -1% for Armenia
(in the latter case due to the war with Azerbaijan and earthquake in Spitak).
These differences largely reflected the variety of historically inherited institutional
patterns. The Baltic countries managed to preserve their European institutional
memory at least at the informal level. They were a sort of “mini-Europe” within the
former USSR. These cultural features helped them in further building of independent
states and later joining the EU. The Western Ukraine has quite similar institutional
history, with even least maturity under the Russian and Soviet institutions. It has
preserved the traditions of civil society and labor morale.
Most of Ukrainian countryside was historically organized as individual farms
rather than villages, so the peasants were more individualistic than their Russian and
Belarusian counterparts. The South-Eastern Ukraine was inhabited by cossacks, and
later on by the settlers of different kinds – mostly serfs moved by their landlords, but
also free farmers and entrepreneurs. Moldova has a lot in common with Romania
sharing the same language and mostly same history until the mid-19th century.
In the Caucasus the blat networks got mixed with remaining clan networks and
other remnants of patrimonial societal structures, and became especially strong. This
resulted in a large shadow economy and high corruption under Soviet times. Besides,
under the conditions of strong protectionism, Georgia and Azerbaijan were monopoly
suppliers of subtropical fruits, flowers and tea to the whole of the former USSR.
Significant differences in development (although, in this dimension, steadily
diminishing), may be well characterized by infant mortality rates, which are widely
used as an indirect indicator of the quality of medical service and infrastructure. In
1985 - 1990, the gap between the best performer among the EEN countries, Belarus’,
and the worst performer, Azerbaijan, constituted as much as 5.2 times (16.2 vs. 85 per
1,000 births), while in Belarus infant mortality rate was “just” twice as high as in, say,
Belgium (8.3 per 1,000 births, typical for Western Europe). The worst performers
were catching up both in Western Europe and the USSR. But while, for instance,
Greece has caught up completely, in the USSR the worst performers have not
managed to, while the best performers have almost stagnated for at least the last
twenty years of Soviet period at levels twice exceeding those of the EU. While the best
achievement among the Soviet republics was a two-thirds reduction during the 20
32
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
33. years between 1970 and 1990 (from 130 to 80 per 1,000 births in Kyrgyz Republic),
Greece has reduced mortality rate more than five times (from 54.4 to a European
average of 10.7 during the same period).
33
ASSESSING THE DEVELOPMENT GAP
CASE Reports No. 74/2007
34. 1II. ECONOMIC DEVELOPMENT
GAP: MEASURING CONVERGENCE
OF PER CAPITA INCOME
Do ENP countries tend to catch up with the EU in terms of per capita income during
the transition from planned to market economy? One of the possible ways to answer this
question is to test for the convergence of per capita incomes between the ENP countries
and EU, exploring concepts of β and σ convergence. In addition, specifics of the
analyzed period should be taken into account, including the depth of the adaptation
recession and reforms progress in post-communist countries of the region.
The analysis is organized as follows: (1) analysis of properties of the data used; (2)
analysis of β and σ convergence of per capita income in low and middle income CIS,
EU candidates and West Balkan countries; (3) empirical explanations of per capita
GDP convergence, including its relationship with market reforms, FDI inflow, and
initial level of development; (4) conclusions about the speed of catching up and the
ways of bridging the development gap between the countries of the region.
III.1. The data
For the purposes of this analysis, the data on GDP per capita in constant 2000
Euro were used. The whole set of 54 analyzed countries could be divided into the
following groups: ENP countries, CIS, EU15, EU-2004, EU-2007, candidate
countries, and West Balkans28. The maximum number of observations for each
country is 17 (1989–2005).
34
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
28 ENP countries: Algeria, Armenia, Azerbaijan, Belarus, Egypt, Georgia, Israel, Jordan, Lebanon, Libya,
Moldova, Morocco, Syria, Tunisia, Ukraine. CIS: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan. EU-15: Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden, United Kingdom. EU-2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Slovakia, Slovenia. EU-2007: Bulgaria, Romania. Candidate countries: Croatia, Macedonia, Turkey.
West Balkans: Albania, Bosnia and Herzegovina, Serbia and Montenegro.
CASE Reports No. 74/2007
35. Choice of real GDP data instead of GDP measured in PPP terms was made due to
he following reasons: (1) data are available for the whole analyzed period for all
countries29, which gives us a balanced panel with 17 annual observations for each
object. PPP data are available for the whole period only for EU-15, while for other
countries/regions it is far more restricted (for instance, data for Serbia and
Montenegro are available only since 2000); (2) if we find that real GDP and GDP
(PPP) are closely correlated, we could argue that real GDP is as appropriate for
measuring development gap as GDP (PPP).
We tested both the long run and short run relationships between these two measures
of income. In order to test the long-run relationship, we used Pedroni cointegration test30.
For testing the short-run relationship, an error correction model was used31.
III.1.1. Long-run relationship
First, we implemented unit root tests in order to determine the order of integration
of the variables. According to the tests, both of the variables are I(1), i.e. their levels
contain unit root, while first differences are stationary32 (Table 3.1).
Second, we implemented Pedroni test for cointegration. Within this test, 7
statistics were calculated for the two alternative hypotheses: common autoregressive
coefficients (4 statistics) and individual autoregressive coefficients (3 statistics). For
the panel variance statistic (v-Statistic), large positive values imply that the null
hypothesis of no cointegration is rejected, while for other six statistics large negative
values imply that the null hypothesis is rejected33. Finally, the literature on panel
cointegration argues that the most reliable statistics (especially in the case of a short
panel) are panel and group ADF-statistics34, and v-Statistics35. In accordance with
these statistics and non-parametric PP-statistics, the null hypothesis about the absence
of cointegration is rejected at 1% significance level (see Table 3.2).
35
ASSESSING THE DEVELOPMENT GAP
29 Except Bosnia and Herzegovina.
30 Pedroni, P. (1997) “Panel Cointegration: Asympotic and Finite Sample Properties of Pooled Time Series Tests
with an Application to the PPP Hypothesis. New Results” Indiana University, mimeo; Pedroni, P. (1999).
“Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors”, Oxford Bulletin
of Economics and Statistics, 61, 653–670.
31 Similar technique is used in Pelipas, I., Chubrik, A. (2007). “Market Reforms and Economic Growth in
Transition: Evidence from Cointegration Analysis and Equilibrium Correction Model”, mimeo.
32 According to Choi Z-statistics (Philips-Perron test), the level of GDP (PPP) is stationary, but two other tests
show its non-stationarity.
33 Pedroni, P. (1997), op. cit.
34 Kelly, R., Mavrotas, G. (2003). Savings and Financial Sector Development: Panel Cointegration Evidence from
Africa World Institute for Development Economics Research Discussion Paper 2003/12; Kappler, M. (2004).
Determination of Potential Growth Using Panel Techniques, Centre for European Economic Research
Discussion Paper 04-69.
35 Bénassy-Quéré A. & M. Coupet & Th. Mayer (2005). „Institutional Determinants of Foreign Direct Investment,“
CEPII Working Papers No. 2005-05.
CASE Reports No. 74/2007
36. Table 3.1. Unit root tests36
Levels First differences
Statistic Probability Number
of observations
Note. Specifications: unit root rests for levels of the variables include trend and intercept, for the first
differences - intercept. Lag length was selected basing on modified Akaike information criteria. Probabilities
are computed assuming asymptotic normality.
Table 3.2. Pedroni cointegration test37
Ha: common AR coefficients
(within-dimension)
Statistic Probability
Weighted
statistic
Probability
Panel v-Statistic 37.26 0.00 16.06 0.00
Panel ρ-Statistic 7.47 0.00 8.04 0.00
Panel PP-Statistic -7.48 0.00 -4.75 0.00
Panel ADF-Statistic -6.82 0.00 -4.62 0.00
Ha: individual AR coefficients
(between-dimension)
Group ρ-Statistic 9.92 0.00 -- --
Group PP-Statistic -3.88 0.00 -- --
Group ADF-Statistic -5.54 0.00 -- --
Taking into account the results of Pedroni cointegration test, we built the model of
long-run relationship between the variables similar to Engle-Granger approach for
time-series analyses:
(1)
i,t i i i LR i,t i,t , yppp =α + β T + b ⋅ y +ε
where αi are individual intercepts (individual effects), Ti are individual trends, εi,t is
the error term which would be used in the error correction model as the error
correction mechanism (ECMi,t). Estimation of this model shows a very strong
relationship between the two variables (all coefficients are highly significant):
36
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
36 Calculations were made in EViews 5.1, unless otherwise indicated.
37 Calculations were made in EViews 6 beta.
Statistic Probability Number
of observations
y (log of real GDP
per capita):
Im, Pesaran and Shin
W-statistics
-0.31 0.38 829 -7.05 0.00 781
ADF – Choi Z-statistics 1.55 0.94 839 -5.59 0.00 781
PP – Choi Z-statistics 0.05 0.52 857 -7.90 0.00 803
yppp (log of GDP PPP
per capita)
Im, Pesaran and Shin
W-stat -1.27 0.10 756 -9.16 0.00 709
ADF – Choi Z-statistics -0.82 0.21 756 -8.29 0.00 709
PP – Choi Z-statistics -6.76 0.00 786 -12.13 0.00 732
Note. H0: no cointegration. Specification: individual intercept and individual trends, automatic lag selection
based on the Akaike information criteria. Number of observations: 918 (54 cross-sections, unbalanced panel).
37. (2)
yppp = + ⋅ y +α + β T +ε
i t 0.47 1.00 i t i i i i t , , , ,
(6.67) (115.00)
where αi are estimated as fixed effects (heteroskedasticity-consistent t-statistics are in
parentheses).
III.1.2. Error correction model
Further, we implemented unit root tests for the error term from (2) in order to
include it in the error correction model for revealing the short-run relationship. All
tests show that ECMi,t is stationary (Table 3.3).
Table 3.3. Unit root tests for error correction mechanism
Note. Im, Pesaran and Shin test can be calculated only with exogenous variables (intercept or trend and
intercept). Lag length was selected basing on modified Akaike information criteria. Probabilities are
computed assuming asymptotic normality.
Stationarity of the error correction mechanism is another proof of the long-run
relationship between the real and PPP-based GDP per capita, and it allows us to build
up the error correction model:
(3)
, , , 1 , i t i t SR i t i t i t , yppp α β b y γ ECM v − Δ = + + ⋅Δ + ⋅ +
where Δ is difference operator, βt are period dummies (period effects), νi,t is the error
term. Estimation of this model shows that the relationship between the analyzed
variables exists both in the short and the long run (all coefficients are highly
significant; coefficient at the error correction mechanism is negative and less than 1
in absolute value):
(4)
i t 0.02 0.98 i t 0.41 i t i t i t , yppp y ECM α β v − −
Δ = + ⋅Δ − ⋅ + + +
, , , 1 ,
(49.10) (98.28) ( 3.94)
where αi and βt are estimated as fixed effects (heteroskedasticity-consistent t-statistics
are in parentheses).
Thus, econometric analysis demonstrates that there exist both short- and long-run
relationships between per capita GDP measured in PPP and real per capita GDP
37
ASSESSING THE DEVELOPMENT GAP
CASE Reports No. 74/2007
Statistic Probability
Exogenous
variables
Number
of observations
y (log of real GDP per capita):
Im, Pesaran and Shin W-statistics -8.79 0.00 intercept 716
ADF – Choi Z-statistics -17.54 0.00 none 718
PP – Choi Z-statistics -19.90 0.00 none 732
38. measured in constant 2000 Euro. This allows us to use real GDP as an appropriate
measure to estimate economic development gap between the CIS and rest of the region.
III.2. Testing for convergence between per capita income
in low and middle income countries of CIS, and European
and Balkan countries
The two concepts of convergence are distinguished: β and σ convergence38. The
first one applies if countries with lower incomes tend to grow faster than richer ones.
In other words, the higher the initial level of GDP per capita, the lower its average
growth rate in the long run. The second concept applies if cross-sectional dispersion
tends to decline over time. β convergence tends to generate σ convergence.
III.2.1. β convergence
The simplest way to test the hypothesis of β convergence is to estimate regression
(5)
aver
Δyi
, aver initial
i i i Δy = a + b⋅ y +ε
where is average growth rate of per capita GDP for a certain period (say, for
10 years), y
initial
i is level of GDP per capita in the initial period, a and b are regression
coefficients (small letters represent natural logarithms). But the empirical evidence of
β convergence is controversial: for instance, R. Barro39 found no significant
relationship between starting levels of per capita income and long-run growth, but he
showed that long-run growth is negatively related to initial level of GDP when several
proxies of human capital are included into the equation. Thus, estimation of equation
(5) may not support convergence hypothesis even in case of its presence.
Hypothesis of presence of β convergence was tested for the set of 54 countries40
(ENP countries, CIS, EU15, EU-2004, EU-2007, candidate countries, and West
Balkans) for the period of 1989–2005. Hence, the following regression was estimated:
38
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
38 Barro, R., Sala-i-Martin, X. (2001). Economic Growth, the MIT Press.
39 Barro, R. (1991). “Economic Growth in a Cross Section of Countries”, The Quarterly Journal of Economics,
CASE Reports No. 74/2007
Vol. 106, No. 2, pp. 407–433.
40 At this stage, all 54 countries were included into convergence analysis in order to capture more observations
(cross-sections).
39. (6)
y 0.058 0.008 y , − −
Δ =− + ⋅
1990 2005 1989
( 3.245) (4.127)
where y is GDP per capita in constant 2000 Euro, t-statistics are in parentheses41. The
results of this estimation show that there is no evidence of convergence among
considered countries; moreover, they diverge in terms of GDP per capita. This is
supported by the Figure 3.1 demonstrating that the higher the initial per capita
income, the higher its average growth rate.
Figure 3.1. Testing for β convergence (full sample)
Note. OX axis: log of GDP per capita in 1989; OY axis: average (per capita) growth rate for 1990-2005 (first
logarithmic differences).
However, the analyzed set of countries includes 27 post-communist economies. All of
them faced adaptation (or transition) recession, followed by a period of recovery growth42
and (in some cases) by a certain long-run growth path. Adaptation recession is not related
to long-run growth, because it has resulted from distortions inherited by these countries
from the period of socialism43. Thus, it looks reasonable to exclude periods of adaptation
recession from the consideration, and re-estimate the regression (6).
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ASSESSING THE DEVELOPMENT GAP
41 Bosnia and Herzegovina was excluded from this estimate, as GDP data for it is available since 1995.
42 Gaidar, Y. (2005). “Recovery Growth as a Stage of Post-Socialist Transition?” CASE – Center for Social and
Economic Research, Studies and Analyses No. 292.
43 De Melo, M., Denizer, C., Gelb, A., Tenev, S. (1997). Circumstance and Choice: the Role of Initial Condition
and Policies in Transition Economies, World Bank Policy Research Working Paper 1866.
CASE Reports No. 74/2007
0 2 4 6 8 10 12
0.06
0.04
0.02
0.00
-0.02
-0.04
-0.06
40. Table 3.4. Last year of adaptation recession in post-communist economies
Note. The last year of adaptation recession is defined as the last year of sustainable (equal to or more than 2 years)
Average growth rates were calculated for these countries for the period
starting from the year following those presented in Table 3.4. Additionally, GDP
per capita in the last year of adaptation recession was taken as an initial one. For
the rest of the countries, averages were calculated for the whole sample
(1990–2005), and initial GDP was that of 1989. As a result, the following
regression was estimated:
(7)
aver 0.116 0.010 initial . y y
Δ = − ⋅
−
(6.313) ( 4.863)
The new results differ from the previous ones dramatically: the convergence is
revealed. The lower the initial level of GDP per capita, the faster its subsequent
growth is. The results are shown at Figure 3.2.
40
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
decline of per capita GDP.
Last year of adaptation recession
Albania 1992
Armenia 1993
Azerbaijan 1996
Belarus 1995
Bosnia and Herzegovina 1996
Bulgaria 1993
Croatia 1993
Czech Republic 1993
Estonia 1993
Georgia 1994
Hungary 1993
Kazakhstan 1995
Kyrgyzstan 1995
Latvia 1993
Lithuania 1994
Macedonia 1995
Moldova 1996
Poland 1991
Romania 1992
Russia 1996
Serbia and Montenegro 1993
Slovakia 1992
Slovenia 1992
Tajikistan 1996
Turkmenistan 1997
Ukraine 1998
Uzbekistan 1996
41. Figure 3.2. Testing for β convergence (taking into account adaptation recession
in post-communist economies)
Note. OX axis: log of GDP per capita in the initial year; OY axis: average (per capita) growth rate for the
selected period (first logarithmic differences).
III.2.2. σ convergence
This type of convergence can be revealed basing on the formula proposed in
Kaitila (2004)44:
(8)
where σt
Y Y
( , )
100,
σ
t i j
mean Y Y
( , )
t i j
⋅
is standard deviation, Yi, Yj are real per capita GDP in groups of countries i
and j. We calculated standard deviations for the following pairs of the countries’ groups:
The results are presented at Figures 3.3-3.6. In almost all cases they support a
theoretical expectation that β convergence tends to generate σ convergence (the only
exception is CIS middle income countries vs. West Balkans). Thus, we can conclude
41
ASSESSING THE DEVELOPMENT GAP
44 Kaitila, V. (2004). “Convergence of Real GDP Per Capita in the EU15. How do the Accession Countries Fit
in?”, European Network of Economic Policy Research Institutes Working Paper No. 25.
45 CIS low income countries include Armenia, Azerbaijan, Georgia, Kyrgyzstan, and Moldova, and CIS middle-income
countries are Belarus, Russia, and Ukraine. Last World Bank papers tend to place Armenia in the group
of middle income countries, but during the whole sample its income was too low to include it into this group.
CASE Reports No. 74/2007
0 2 4 6 8 10 12
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
-0.02
EU-2004 or EU-12 (EU-2004 plus Bulgaria and Romania);
Candidate countries (Croatia, Macedonia, Turkey);
Potential candidate countries (West Balkans);
CIS (low or middle
income countries45) vs.:
EU-15.
42. 140
135
130
125
120
115
120
110
100
90
80
70
60
Source: Own calculations. Source: Own calculations.
Figure 3.5: σ convergence between
the candidate countries and low
and middle income CIS countries
Figure 3.6: σ convergence between the West
Balkans and low and middle income
CIS countries
110
100
90
80
70
60
50
40
30
20
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Candidate countries vs. low income
Candidate countries vs. middle income
60
50
40
30
20
10
0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
West Balkans vs. low income
West Balkans vs. middle income
that CIS countries tend to catch up with European and Balkan countries in terms of
real per capita GDP.
III.3. Empirical explanations of per capita GDP convergence
III.3.1. Initial level of income and convergence speed
Findings made in the previous section could be shown in a simple way based on
the following approach. Fist, we leave in the sample the following groups: CIS, EU-
2004, EU-2007, candidate countries, and West Balkans (31 countries). Second, we
42
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
Figure 3.3. σ convergence between EU-15
and low and middle income CIS countries
Figure 3.4. σ convergence between EU-12
and low and middle income CIS countries
110
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
EU-15 vs. low income EU-15 vs. low income
50
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
EU-12 vs. low income EU-12 vs. low income
Source: Own calculations. Source: Own calculations.
43. divide these countries into 5 groups based on the level of GDP per capita in 2005: less
than EUR 1,000 (in constant 2000 prices), EUR 1,001–2,000, EUR 2,001–5,000, EUR
5,001–10,000, and above EUR 10,00046. Additionally, these groups were subdivided
into ENP countries, EU-12, and Russia. Further, we compare the average level of
GDP pre capita in each of these groups with the average per capita GDP in EU-15
over the period of 1989–2005. Further, basing on the results from the previous
section, we concentrate on the post-199847 part of the sample in order to consider
post-recession period. For this purpose, the following index is calculated:
(9)
i i
ratio GDPPC GDPPC
i t
t EU EU
= 1989
⋅
GDPPC − GDPPC − /
15 15
1989
100,
/
t
where GDPPC is per capita GDP, i denotes a group of countries, t denotes period of
time. If this index for a country group i increases over time, GDP per capita in this
group grows faster than in EU-15, or catch up with the EU level. Further, according
to the concept of β convergence, the poorest countries should catch up fastest.
Figure 3.7 shows that the difference between per capita GDP of EU-15 and that
of the analyzed groups of countries decreased compared to 1989 only in the richest
countries (with average per capita GDP in 2005 above EUR 10,000). But the ratio
of average per capita income for this group of countries to average EU-15 income
remained almost stable since 1995. Other groups of countries demonstrate very
similar profiles: growing ratios of per capita income after a certain period of
decline. As a result of this decline, none of the groups reached the level of 1989 by
2005. Additionally, the poorer the group of countries was, the deeper (or longer)
this decline was. In the phase of growth, profiles for 3 groups of countries (EUR
1,001–2,000, EUR 2,001–5,000, and EUR 5,000–10,000) were almost parallel to
each other. As a result, countries with lower per capita income achieved less
progress compared to the 1989 level than richer countries. The poorest group of
countries shows the least speed of convergence after the longest and deepest output
recession. From this point of view, the idea of β convergence does not find
empirical support, though in general ‘middle-income’ countries (in our case, with
per capita GDP of EUR 1,001–10,000) catch up with both EU-15 and other
countries with per capita GDP above EUR 10,000.
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ASSESSING THE DEVELOPMENT GAP
46 Less than EUR 1,000: Kyrgyzstan, Moldova, Tajikistan, Uzbekistan; EUR 1,001–2,000: Albania, Armenia,
Azerbaijan, Bosnia and Herzegovina, Georgia, Serbia and Montenegro, Ukraine; EUR 2,001–5,000: Belarus,
Bulgaria, Macedonia, Romania, Russia, Turkey, Turkmenistan; EUR 5,001–10,000: Croatia, Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia; above EUR 10,000: Cyprus, Malta, Slovenia.
47 The last year of adaptation recession throughout the sample, see Table 3.4.
CASE Reports No. 74/2007
44. Figure 3.7. Ratio of the average per capita income in the analyzed groups of countries and
EU-15 depending on the level of per capita income (index, 1989 = 100)
110
100
90
80
70
60
50
40
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
>10000 5000-10000 2000-5000 1000-2000 <1000
The results change drastically if we consider post-1998 sample. The richest
countries (over EUR 10,000 per capita) have not caught up during this period. Per
capita GDP in the group of countries between EUR 2,000 and 10,000 has reached
approximately 120% of its 1998 level, while in poorer countries (EUR 1,000–2,000) it
has approached 130% of the ‘benchmark’ level. The results obtained support the
hypothesis of β convergence. The only exception is the group of countries with the
lowest per capita income (less than EUR 1,000): in 2005, their per capita GDP
achieved about 112% of the 1998 level.
Figure 3.8 represents the same set of countries divided into three groups: ENP
countries, EU-12 countries, and Russia. It is evident that ENP countries with medium
44
I. Sinitsina, A. Chubrik, I. Denisova, V. Dubrovskiy, M. Kartseva, I. Makenbaeva, M. Rokicka, M. Tokmazishvili
CASE Reports No. 74/2007
Source: Own calculations.
Figure 3.8. Ratio of the average per capita income in the analyzed groups of countries
(sub-groups: ENP countries, EU-12, and Russia) and EU-15 depending on the level
of per capita income (index, 1989 = 100)
100
90
80
70
60
50
40
30
20
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
EU-12 (SI) EU-12 (CZ, EE, HU, LT, LV, PL, SK)
ENP (BY) ENP (AR, AZ, GE, UA)
ENP (MD) Russia
45. income (EUR 2,000–5,000, represented by Belarus alone) and EU-12 countries
converged with the EU-15 in terms of 1989 level of GDP per capita. Other ENP
countries and Russia attained much less progress in convergence with the EU-15. But
again, for the sample of 1998–2005 convergence was observed for all country groups
with the exception of Moldova, which has made the same progress in catching up with
EU-15 as the richest of EU-12 have.
III.3.2. Determinants of catching up
The following explanations can be found for the output behavior in the mentioned
groups of countries. First, ‘rich’ (i.e. middle income) and poor countries have different
geographical position and different initial conditions (structural distortions). Low-income
countries are mostly Asian and Caucasus CIS countries which had poor initial
conditions and were situated “far from Brussels”. That meant deeper and/or longer
output decline and less likelihood of fast and comprehensive reforms compared to the
countries of CEB region48.
Figure 3.9. Ratio of the average per capita income in active and partial reformers and EU-15
(index, 1989 = 100)
100
90
80
70
60
50
40
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: EBRD, own calculations.
4.33
4.00
3.67
3.33
3.00
2.67
2.33
2.00
1.67
1.33
Since the set of countries analyzed includes 27 transition economies, we should
take into account different speed of reforms as a determinant of catching-up speed.
We subdivided these 27 countries into two groups (a first group of ‘active reformers’
with EBRD reform index49 of 3 and above, and a second group of ‘slow and partial
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ASSESSING THE DEVELOPMENT GAP
48 Fischer, S., Sahay, R. (2000). “The Transition Economies after Ten Years”, IMF Working Paper WP/00/30.
49 Simple average of 9 EBRD transition indicators. See Falcetti, E., Lysenko, T., Sanfey, P. (2006). “Reforms and
Growth in Transition: Re-examining the Evidence”, Journal of Comparative Economics Vol. 34, No. 3, pp. 421–445.
CASE Reports No. 74/2007
1.00
active reformers (EBRD, right axis) slow and partial reformers (EBRD, right axis)
active reformers slow and partial reformers