This paper provides the quantitative estimate of the potential growth bonus for CIS countries, and in particular EU's Easter Neighbours, that can be a result of deeper institutional harmonisation with the EU. Econometric investigation involving instrumental variable, simultaneous equation and dynamic panel techniques documents the strong positive link between growth performance and reforms, as well as between reforms and European integration. The paper derives the range of possible values of growth bonus from the deepened neighbourhood cooperation between 1 and 3.8 with the median at 1.8 percentage points. The least growth bonus is expected through basic liberalization reforms, while countries with a considerable institutional gap are likely to gain the most.
Authored by: Artur Radziwill, Pawel Smietanka
Published in 2009
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
The CIS countries' EU-related interests are very heterogeneous. The countries themselves differ not only in terms of their geopolitical and geo-economic situations, and how those affect their relations with the EU, but also in their levels of ambition in relation to the Union, as well as their specific sectoral interests. Some Eastern Partners have set full EU membership as their strategic goal; others want to enjoy the benefits of the common free market, and the ambitions of others are limited to developing cooperation in selected areas. Similarly, the EU's policy towards its Eastern neighbourhood is multi-level and very diverse, considering as it must the different characters of mutual relations. The EU and most of its Eastern partners have a sufficient number of common or converging interests to expect reasonable cooperation between the two sides to develop and deepen. However, serious challenges and problems exist that may prevent this positive scenario from being realised.
Authored by: Marcin Kaczmarski, Wojciech Kononczuk, Marek Menkiszak
Published in 2008
The paper discusses the current and potential role of the European Neighbourhood Policy (ENP) in anchoring economic reforms in the countries of the EU's Eastern Neighbourhood. It claims that it is too early to assess the success of the ENP in this sphere especially given that the actual progress of the ENP agenda has been limited. A review of the empirical evidence on external reform anchors confirms that the ENP shares some features with the EU accession process that has proven to be an effective mechanism supporting major economic, political and social changes in the countries concerned. The eventual ENP economic offer is meaningful and integration with the EU is getting stronger public support in several CIS countries and among their political elites. On the other hand several factors limit the reform anchoring potential of the ENP. This paper offers recommendations on policies that could strengthen this potential.
Authored by: Wojciech Paczynski
Published in 2009
This paper describes the general framework of the EU’s emerging relationship with its new neighbours and investigates the potential economic impact of the European Neighbourhood Policy (ENP), both for the EU itself and for its neighbours. In particular, it seeks to develop an answer to the question of whether the ENP is sufficiently attractive so as to induce the governments in neighbourhood countries to adopt (or accelerate the adoption of) the types of economic and governance reforms that were implemented in the new member states during their accession processes. Although the specifics of the ENP are still being developed, the lack of incentives as regards to unclear accession to the EU is identified as the main weakness of the ENP.
Economically, the ENP seeks to ease trade restrictions through the implementation of legislative approximation and convergence with EU standards, before accessing the EU’s single market can become a reality. Positively though, is that the access to the single market could improve significantly under the ENP. As experienced by the Central European states, FDI is instrumental to transform the economies of the Western CIS and the Caucasus. The ENP can be a supportive framework for improving investor confidence. Likewise, the new European Neighbourhood Instrument can add more coherence in technical assistance, and provide more financial support for creating capacities for trade infrastructures and institutional and private sector development. Finally, measures to promote increased labour migration between the new neighbours and the enlarged EU may be worth to put on the agenda for the future development and impact of the ENP.
Authored by: Susanne Milcher, Ben Slay
Published in 2005
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
This paper focuses on roots of strain in the European Monetary Union (EMU). It argues that there is need for a thorough reform of the governance structure of the Union in conjunction with radical changes in the regulation and supervision of financial markets. Financial intermediation has gone astray in recent decades and entailed a big bubble in the industrialized world. Waves of financial deregulation have enhanced systemic risks, via speculative behavior and growing inter-connectedness. Moreover, the EMU was sub-optimal from its debut and competitiveness gaps did not diminish against the backdrop of its inadequate policy and institutional design. The euro zone crisis is not related to fiscal negligence only; over-borrowing by the private sector and poor lending by banks, as well as a one-sided monetary policy, also explain this debacle. The EMU needs to complement its common monetary policy with solid fiscal/budget underpinnings. Fiscal rules and sanctions are necessary, but not sufficient. A common treasury (a federal budget) is needed in order to help the EMU absorb shocks and forestall confidence crises. A joint system of regulation and supervision of financial markets should operate. Emergency measures have to be comprehensive and acknowledge the necessity of a lender of last resort; they have to combat vicious circles. Structural reforms and EMU level policies are needed to enhance competitiveness in various countries and foster convergence. The EU has to work closely with the US and other G20 members in order to achieve a less unstable global financial system.
Authored by: Daniel Daianu
Published in 2012
The empirical analysis of the determinants of institutional development in transition countries as well as the qualitative country studies summarized in this publication allow for some optimism concerning a potential impact of the EU on institution building and governance quality in CIS countries. Regression analysis reveals a positive impact of EU cooperation agreements below a membership perspective. Alternatively to the EU, entry into the NATO accession process also exerts incentives for better institutions which are often overlooked. In contrast, WTO membership is not found to have any impact on institution building in CIS countries. While there is room for some EU-related optimism given the results from the regression analysis it depends on the country-specific ENP action plans and programs whether or not ENP cooperation actually leads to Europeanization or institutional convergence towards EU standards in the CIS. The case studies on the effectiveness of Neighborhood Europeanization through ENP in Ukraine, Georgia, and Azerbaijan reveal that current EU policies towards these countries can be, at best, seen as a catalyst but not as a main driver of institutional convergence. A perspective for a stake in the internal market is on the long horizon for Ukraine only. ENP mechanisms for conflict resolution in Georgia and Azerbaijan have been rather weak before the recent clash in Abkhazia and South Ossetia. The top-down institutional convergence, i.e. an EU-first strategy, worked well for Enlargement Europeanization but implemented in the ENP it significantly reduces the leverage of the EU to create a ring of well-governed neighbour states.
Authored by: Thorsten Drautzburg, Andrea Gawrich, Inna Melnykovska, Rainer Schweickert
Published in 2008
The paper contributes to the recent empirical literature on real exchange rates in CEECs. Instead of estimating a complete model, the PPP and relative price models (two main components of the real exchange rate) are investigated separately. All empirical tests are conducted in the heterogonous dynamic panel framework. The unbalanced panel includes generally nine CEECs (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia) over 1993-2002.
Authored by: Łukasz Rawdanowicz
Published in 2004
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
The CIS countries' EU-related interests are very heterogeneous. The countries themselves differ not only in terms of their geopolitical and geo-economic situations, and how those affect their relations with the EU, but also in their levels of ambition in relation to the Union, as well as their specific sectoral interests. Some Eastern Partners have set full EU membership as their strategic goal; others want to enjoy the benefits of the common free market, and the ambitions of others are limited to developing cooperation in selected areas. Similarly, the EU's policy towards its Eastern neighbourhood is multi-level and very diverse, considering as it must the different characters of mutual relations. The EU and most of its Eastern partners have a sufficient number of common or converging interests to expect reasonable cooperation between the two sides to develop and deepen. However, serious challenges and problems exist that may prevent this positive scenario from being realised.
Authored by: Marcin Kaczmarski, Wojciech Kononczuk, Marek Menkiszak
Published in 2008
The paper discusses the current and potential role of the European Neighbourhood Policy (ENP) in anchoring economic reforms in the countries of the EU's Eastern Neighbourhood. It claims that it is too early to assess the success of the ENP in this sphere especially given that the actual progress of the ENP agenda has been limited. A review of the empirical evidence on external reform anchors confirms that the ENP shares some features with the EU accession process that has proven to be an effective mechanism supporting major economic, political and social changes in the countries concerned. The eventual ENP economic offer is meaningful and integration with the EU is getting stronger public support in several CIS countries and among their political elites. On the other hand several factors limit the reform anchoring potential of the ENP. This paper offers recommendations on policies that could strengthen this potential.
Authored by: Wojciech Paczynski
Published in 2009
This paper describes the general framework of the EU’s emerging relationship with its new neighbours and investigates the potential economic impact of the European Neighbourhood Policy (ENP), both for the EU itself and for its neighbours. In particular, it seeks to develop an answer to the question of whether the ENP is sufficiently attractive so as to induce the governments in neighbourhood countries to adopt (or accelerate the adoption of) the types of economic and governance reforms that were implemented in the new member states during their accession processes. Although the specifics of the ENP are still being developed, the lack of incentives as regards to unclear accession to the EU is identified as the main weakness of the ENP.
Economically, the ENP seeks to ease trade restrictions through the implementation of legislative approximation and convergence with EU standards, before accessing the EU’s single market can become a reality. Positively though, is that the access to the single market could improve significantly under the ENP. As experienced by the Central European states, FDI is instrumental to transform the economies of the Western CIS and the Caucasus. The ENP can be a supportive framework for improving investor confidence. Likewise, the new European Neighbourhood Instrument can add more coherence in technical assistance, and provide more financial support for creating capacities for trade infrastructures and institutional and private sector development. Finally, measures to promote increased labour migration between the new neighbours and the enlarged EU may be worth to put on the agenda for the future development and impact of the ENP.
Authored by: Susanne Milcher, Ben Slay
Published in 2005
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
This paper focuses on roots of strain in the European Monetary Union (EMU). It argues that there is need for a thorough reform of the governance structure of the Union in conjunction with radical changes in the regulation and supervision of financial markets. Financial intermediation has gone astray in recent decades and entailed a big bubble in the industrialized world. Waves of financial deregulation have enhanced systemic risks, via speculative behavior and growing inter-connectedness. Moreover, the EMU was sub-optimal from its debut and competitiveness gaps did not diminish against the backdrop of its inadequate policy and institutional design. The euro zone crisis is not related to fiscal negligence only; over-borrowing by the private sector and poor lending by banks, as well as a one-sided monetary policy, also explain this debacle. The EMU needs to complement its common monetary policy with solid fiscal/budget underpinnings. Fiscal rules and sanctions are necessary, but not sufficient. A common treasury (a federal budget) is needed in order to help the EMU absorb shocks and forestall confidence crises. A joint system of regulation and supervision of financial markets should operate. Emergency measures have to be comprehensive and acknowledge the necessity of a lender of last resort; they have to combat vicious circles. Structural reforms and EMU level policies are needed to enhance competitiveness in various countries and foster convergence. The EU has to work closely with the US and other G20 members in order to achieve a less unstable global financial system.
Authored by: Daniel Daianu
Published in 2012
The empirical analysis of the determinants of institutional development in transition countries as well as the qualitative country studies summarized in this publication allow for some optimism concerning a potential impact of the EU on institution building and governance quality in CIS countries. Regression analysis reveals a positive impact of EU cooperation agreements below a membership perspective. Alternatively to the EU, entry into the NATO accession process also exerts incentives for better institutions which are often overlooked. In contrast, WTO membership is not found to have any impact on institution building in CIS countries. While there is room for some EU-related optimism given the results from the regression analysis it depends on the country-specific ENP action plans and programs whether or not ENP cooperation actually leads to Europeanization or institutional convergence towards EU standards in the CIS. The case studies on the effectiveness of Neighborhood Europeanization through ENP in Ukraine, Georgia, and Azerbaijan reveal that current EU policies towards these countries can be, at best, seen as a catalyst but not as a main driver of institutional convergence. A perspective for a stake in the internal market is on the long horizon for Ukraine only. ENP mechanisms for conflict resolution in Georgia and Azerbaijan have been rather weak before the recent clash in Abkhazia and South Ossetia. The top-down institutional convergence, i.e. an EU-first strategy, worked well for Enlargement Europeanization but implemented in the ENP it significantly reduces the leverage of the EU to create a ring of well-governed neighbour states.
Authored by: Thorsten Drautzburg, Andrea Gawrich, Inna Melnykovska, Rainer Schweickert
Published in 2008
The paper contributes to the recent empirical literature on real exchange rates in CEECs. Instead of estimating a complete model, the PPP and relative price models (two main components of the real exchange rate) are investigated separately. All empirical tests are conducted in the heterogonous dynamic panel framework. The unbalanced panel includes generally nine CEECs (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia) over 1993-2002.
Authored by: Łukasz Rawdanowicz
Published in 2004
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
The present discussion paper, serves to initiate a debate on the current and future role of clusters and cluster organisations in connection with skills development with a special focus on emerging indus-tries.
In recent years, “the cluster and skills” topic gained increasing importance among policy makers in Europe, notably in the context of the New skills Agenda, the Blueprint for sectoral cooperation on skills, Sector Skills Alliance under ERASMUS+, the Digital Skills and Jobs Coalition etc 1. As this paper will show, numerous cluster organisations have initiated actions related to education and training. The rationale for this trend is the emergence of new industries and increasing technological convergence which leads to continuously change of workforce skills by industry. The ongoing discussions point out that much more clarity is needed on how current training efforts are embedded in cluster development and by whom these measures can be implemented best. Also, more insights on what kind of role clus-ter organisations can or should play to assure that workforce skills match the ongoing needs of indus-try, markets, and society are required.
This paper studies costs and benefits of institutional harmonisation in the context of EU relations with its neighbors. The purpose of this paper is to outline the likely forms of institutional harmonisation between the EU and its Eastern neighbors and provide an
overview of the methodologies that can be used in measuring its effects (costs and benefits). This paper serves as a background for two measurement exercises – one on benefits and another on costs – that are to be undertaken during the second stage of research.
Authored by: Veliko Dimitrov, Vladimir Dubrovskiy, Anna Kolesnichenko, Irina Orlova
Published in 2007
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 report reviews key issues in energy trade and cooperation between the EU and CIS countries. It describes historical trends of oil and gas demand in the EU, other European and CIS countries and offers demand forecasts until 2030. Recent developments in oil and gas production and exports from Russia and Caspian countries are covered in detail leading to the discussion of the likely export potential of these regions. The key factors determining the production outlook, trade-offs and competition related to energy resources transportation choices are also discussed. The report also covers the interests and role of transit countries in relations between producer and consumer regions. The analytical section leads to policy recommendations that focus mainly on the EU.
Authored by: Sabit Bagirov, Leonid Grigoriev, Wojciech Paczynski, Vladimer Papava, Marcel Salikhov, Michael Tokmazishvili
Published in 2009
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
This report aims to identify, explain and detail the links and interactions in Southern and Eastern Mediterranean countries (SEMCs) between energy supply and demand and socio-economic development, as well as the potential role of energy supply and demand policies on both. Another related aim is to identify and analyse, in a quantitative and qualitative way, the changing role of energy (both demand and supply) in southern Mediterranean economies, focusing on its positive and negative impact on socio-economic development.
This report investigates in particular:
The most important channels through which resource wealth can contribute to or hamper economic and social development in the analysed region;
Mechanisms and channels of relations between energy supply and demand policies and economic and social development.
The burdens of energy subsidies and ‘oil syndrome’ are of particular relevance for the region. An integrated socio-economic development and energy policy scenario approach showing the potential benefits and synergies within countries and the region is developed in the final part of the report.
Written by Emmanuel Bergasse, Wojciech Paczynski, Marek Dabrowski and Luc De Wulf. Published in March 2013.
PDF available on our website at: http://www.case-research.eu/en/node/57975
This paper provides the results of analyses of key problems related to pension systems and their reforms in Russia and Ukraine. The pension systems and their reforms in both countries are compared. They are also compared with the general picture observed in the OECD or selected countries belonging to that area. The analysis focuses on long-term trends rather than short-term shocks. The recent economic crisis is not covered since the analysis was mostly completed by 2008.
Authored by: Marek Gora, Oleksandr Rohozynsky, Oksana Sinyavskaya
Published in 2010
This paper presents forecasts for the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) for the period 2015-2015 for six countries in the region, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. It is a continuation of the endeavor to construct synthetic indices measuring financial stress and economic sensitivity for twelve Central and East European countries using the Principal Component Analysis. In order to obtain forecasts of the FSI, we estimated Vector Autoregression (VAR) models on monthly data for the period 2001-2012 separately for all the countries. Using quarterly historical values of ESI and FSI, we estimated Dynamic Panel Data Model for the complete sample of countries. Parameters of the model were later used for forecasting the ESI. Obtained results suggest that the FSI will start to rise in 2014 in the Czech Republic, Lithuania, and Estonia. For Latvia and Hungary, we observed a conversion in the trend, i.e. at the beginning of 2015, when the index should start to fall. According to our forecasts, the ESI will be rising in the next two years, except for Hungary, where we predict a continuous decrease in economic sensitivity.
Authored by: Maciej Krzak and Grzegorz Poniatowski
Published in 2014
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.
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
In light of ongoing negotiations between the Lao People’s Democratic Republic’s (Lao PDR) government and the Chinese People’s Republic (PR China) provincial authorities of Yunnan to set-up a cross-border economic zone (CBEZ), which is supposed to connect Boten, Luangnamtha province (Lao PDR) and Mohan, Yunnan province (PR China), GIZ Regional Economic Cooperation and Integration in Asia (RCI) Programme in cooperation with the Secretariat to the Lao National Committee for Special Economic Zones (S-NCSEZ) conducted several joint activities on the topic of “Cross-border Economic Zones/Clusters” in July and September 2013.
BR 6 / Řízení VaV a systémy financování výzkumu v mezinárodní praxiMEYS, MŠMT in Czech
R&D governance and institutional funding in international practice
/
This report constitutes a background report to the Final report 2 – The Institutional Funding Principles. It collects the outcomes of the analyses related to the R&D governance and funding systems in international practice (‘comparator’ countries: Austria, the Netherlands, Norway, Sweden and the UK). It sets the context for the study team’s reflections on the strength and weaknesses of the current institutional funding system in the Czech Republic and especially for the proposed revision of the funding principles.
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
This paper analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and nontradable sectors. Firstly, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependant on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of analysed shocks. Secondly, we conduct an empirical analysis of the behaviour of the tradable and nontradable sectors under different exchange rate regimes for seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.
Authored by: Przemyslaw Kowalski, Wojciech Paczynski, Łukasz Rawdanowicz
Published in 2003
The Orange Revolution in the fall of 2004 built great hopes for a better future for Ukraine. However, three years later those hopes have been replaced by disappointment, frustration and confusion. Although progress in the areas of political freedom, pluralism, civil rights and freedom in the media remains unquestionable the record of economic, institutional and legal reforms is much more problematic. The key macroeconomic indicators are not better than they were few years ago and the business climate has barely improved. The WTO accession process remains incomplete. The perspectives of Euro-Atlantic integration are continually subject to heated domestic political controversies. The political situation remains unstable, mostly due to the hasty constitutional changes that were adopted during the Orange Revolution.
The purpose of this paper is to analyze the state of the Ukrainian economy at the end of 2007 and reflect upon what kind of reform program the Ukrainian government should consider, regardless of its political color. The reforms suggested in this paper involve a broad agenda of macroeconomic, social, structural and institutional measures. This agenda goes beyond the purely economic sphere and also addresses issues of legal, administrative and political reforms. The politics and political economy of any future reform effort will not be easy because the country is deeply divided in political, cultural, regional and ethnic terms. In such an environment, crucial reforms and strategic decisions will require a wider cross-party political consensus.
Authored by: Marek Dąbrowski
Published in 2007
Does European economic integration create more inequality between domestic regions, or is the opposite true? We show that a general answer to this question does not exist, and that the outcome depends on the liberalisation scenario. In order to examine the impact of European and international integration on the regions, the paper develops a numerical simulation model with nine countries and 90 regions. Eastward extension of European integration is beneficial for old as well as new member countries, but within countries the impact varies across regions. Reduction in distance-related trade costs is particularly good for the European peripheries. Each liberalisation scenario has a distinct impact on the spatial income distribution, and there is no general rule telling that integration causes more or less agglomeration.
Authored by Arne Melchior
Published in 2009
Institutional harmonization is an important part of European integration, and its effects are more far reaching than the effects of trade liberalization. In its policy towards neighbors (the European Neighborhood Policy, ENP), the EU puts a lot of stress on the desirability of institutional harmonization, at least in certain areas. In particular, the free trade agreements that the EU envisages concluding with its Eastern neighbors will involve substantial harmonization of product standards, competition policy and a range of other policies and processes. At the very least, the harmonization will have to focus on the areas that relate to improvement of market access, i.e. removing restrictions to trade, harmonizing product standards and the systems of quality control etc. But in order to implement the new standards and rules, the EU neighbors will have to reform many related areas, so that the harmonization will encompass the whole system of economic governance. Not only will such a revamp help attaining better access to the EU markets, but also (and probably more importantly) it will stimulate modernization of the neighbors' economies and bring much needed efficiency gains.
In measurement of benefits of harmonization we refer to two methods: one based on the computable general equilibrium (CGE) modeling of welfare effects of better market access, and the other employing a growth model to estimate the wider effects of European institutions on growth. The estimation of costs of harmonization bases on extrapolation of the analogous costs in other countries, in particular CEE. These costs include expenses by a public sector on introduction of harmonization measures, as well as private sector expenses and investments related to their implementation.
Authored by: Anna Kolesnichenko
Published in 2009
This paper analyzes the costs of (partial) institutional harmonization with the EU acquis which countries of the former USSR are expected to conduct under their Partnership and Cooperation Agreements with the EU and European Neighborhood Policy Action Plans. The public sector will have to take an effort of the transposition and adaptation of EU norms, as well as ensuring that they are complied with. Yet, the major part of the adjustment costs will fall on the private sector, as enterprises will have to make substantial investments to comply with new product requirements and business practices.
In this study we used the method of extrapolation of average costs for CEE countries’ harmonization with acquis to estimate the potential harmonization costs for the neighboring countries based on internationally comparative macroeconomic indicators like sectoral and total value added. This involved estimating the EU pre-accession support for the CEE countries by main areas as a percentage of the total or sectoral value added, determining the expected degree of limited harmonization in the ENP countries and estimating “coefficients of limited harmonization”, which was subsequently used for adjustment of the estimated cost of full harmonization.
Authored by: Veliko Dmitrov
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
The present discussion paper, serves to initiate a debate on the current and future role of clusters and cluster organisations in connection with skills development with a special focus on emerging indus-tries.
In recent years, “the cluster and skills” topic gained increasing importance among policy makers in Europe, notably in the context of the New skills Agenda, the Blueprint for sectoral cooperation on skills, Sector Skills Alliance under ERASMUS+, the Digital Skills and Jobs Coalition etc 1. As this paper will show, numerous cluster organisations have initiated actions related to education and training. The rationale for this trend is the emergence of new industries and increasing technological convergence which leads to continuously change of workforce skills by industry. The ongoing discussions point out that much more clarity is needed on how current training efforts are embedded in cluster development and by whom these measures can be implemented best. Also, more insights on what kind of role clus-ter organisations can or should play to assure that workforce skills match the ongoing needs of indus-try, markets, and society are required.
This paper studies costs and benefits of institutional harmonisation in the context of EU relations with its neighbors. The purpose of this paper is to outline the likely forms of institutional harmonisation between the EU and its Eastern neighbors and provide an
overview of the methodologies that can be used in measuring its effects (costs and benefits). This paper serves as a background for two measurement exercises – one on benefits and another on costs – that are to be undertaken during the second stage of research.
Authored by: Veliko Dimitrov, Vladimir Dubrovskiy, Anna Kolesnichenko, Irina Orlova
Published in 2007
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 report reviews key issues in energy trade and cooperation between the EU and CIS countries. It describes historical trends of oil and gas demand in the EU, other European and CIS countries and offers demand forecasts until 2030. Recent developments in oil and gas production and exports from Russia and Caspian countries are covered in detail leading to the discussion of the likely export potential of these regions. The key factors determining the production outlook, trade-offs and competition related to energy resources transportation choices are also discussed. The report also covers the interests and role of transit countries in relations between producer and consumer regions. The analytical section leads to policy recommendations that focus mainly on the EU.
Authored by: Sabit Bagirov, Leonid Grigoriev, Wojciech Paczynski, Vladimer Papava, Marcel Salikhov, Michael Tokmazishvili
Published in 2009
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
This report aims to identify, explain and detail the links and interactions in Southern and Eastern Mediterranean countries (SEMCs) between energy supply and demand and socio-economic development, as well as the potential role of energy supply and demand policies on both. Another related aim is to identify and analyse, in a quantitative and qualitative way, the changing role of energy (both demand and supply) in southern Mediterranean economies, focusing on its positive and negative impact on socio-economic development.
This report investigates in particular:
The most important channels through which resource wealth can contribute to or hamper economic and social development in the analysed region;
Mechanisms and channels of relations between energy supply and demand policies and economic and social development.
The burdens of energy subsidies and ‘oil syndrome’ are of particular relevance for the region. An integrated socio-economic development and energy policy scenario approach showing the potential benefits and synergies within countries and the region is developed in the final part of the report.
Written by Emmanuel Bergasse, Wojciech Paczynski, Marek Dabrowski and Luc De Wulf. Published in March 2013.
PDF available on our website at: http://www.case-research.eu/en/node/57975
This paper provides the results of analyses of key problems related to pension systems and their reforms in Russia and Ukraine. The pension systems and their reforms in both countries are compared. They are also compared with the general picture observed in the OECD or selected countries belonging to that area. The analysis focuses on long-term trends rather than short-term shocks. The recent economic crisis is not covered since the analysis was mostly completed by 2008.
Authored by: Marek Gora, Oleksandr Rohozynsky, Oksana Sinyavskaya
Published in 2010
This paper presents forecasts for the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) for the period 2015-2015 for six countries in the region, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. It is a continuation of the endeavor to construct synthetic indices measuring financial stress and economic sensitivity for twelve Central and East European countries using the Principal Component Analysis. In order to obtain forecasts of the FSI, we estimated Vector Autoregression (VAR) models on monthly data for the period 2001-2012 separately for all the countries. Using quarterly historical values of ESI and FSI, we estimated Dynamic Panel Data Model for the complete sample of countries. Parameters of the model were later used for forecasting the ESI. Obtained results suggest that the FSI will start to rise in 2014 in the Czech Republic, Lithuania, and Estonia. For Latvia and Hungary, we observed a conversion in the trend, i.e. at the beginning of 2015, when the index should start to fall. According to our forecasts, the ESI will be rising in the next two years, except for Hungary, where we predict a continuous decrease in economic sensitivity.
Authored by: Maciej Krzak and Grzegorz Poniatowski
Published in 2014
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.
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
In light of ongoing negotiations between the Lao People’s Democratic Republic’s (Lao PDR) government and the Chinese People’s Republic (PR China) provincial authorities of Yunnan to set-up a cross-border economic zone (CBEZ), which is supposed to connect Boten, Luangnamtha province (Lao PDR) and Mohan, Yunnan province (PR China), GIZ Regional Economic Cooperation and Integration in Asia (RCI) Programme in cooperation with the Secretariat to the Lao National Committee for Special Economic Zones (S-NCSEZ) conducted several joint activities on the topic of “Cross-border Economic Zones/Clusters” in July and September 2013.
BR 6 / Řízení VaV a systémy financování výzkumu v mezinárodní praxiMEYS, MŠMT in Czech
R&D governance and institutional funding in international practice
/
This report constitutes a background report to the Final report 2 – The Institutional Funding Principles. It collects the outcomes of the analyses related to the R&D governance and funding systems in international practice (‘comparator’ countries: Austria, the Netherlands, Norway, Sweden and the UK). It sets the context for the study team’s reflections on the strength and weaknesses of the current institutional funding system in the Czech Republic and especially for the proposed revision of the funding principles.
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
This paper analyses the impact of exchange rate regimes on the real sector. While most studies in this field have so far concentrated on aggregate variables, we pursue a sectoral approach distinguishing between the tradable and nontradable sectors. Firstly, we present a survey of the relevant theoretical and empirical literature. This demonstrates that evaluations of exchange rate regimes and their impact on the real economy are largely dependant on specific assumptions concerning, in particular, the parameters of a utility function, the nature of the price adjustment process and the characteristics of analysed shocks. Secondly, we conduct an empirical analysis of the behaviour of the tradable and nontradable sectors under different exchange rate regimes for seven Central and Eastern European countries. We find no firm evidence of a differential impact of given exchange rate regimes on the dynamics of output and prices in the two sectors. We proffer a conceptual and technical interpretation of this.
Authored by: Przemyslaw Kowalski, Wojciech Paczynski, Łukasz Rawdanowicz
Published in 2003
The Orange Revolution in the fall of 2004 built great hopes for a better future for Ukraine. However, three years later those hopes have been replaced by disappointment, frustration and confusion. Although progress in the areas of political freedom, pluralism, civil rights and freedom in the media remains unquestionable the record of economic, institutional and legal reforms is much more problematic. The key macroeconomic indicators are not better than they were few years ago and the business climate has barely improved. The WTO accession process remains incomplete. The perspectives of Euro-Atlantic integration are continually subject to heated domestic political controversies. The political situation remains unstable, mostly due to the hasty constitutional changes that were adopted during the Orange Revolution.
The purpose of this paper is to analyze the state of the Ukrainian economy at the end of 2007 and reflect upon what kind of reform program the Ukrainian government should consider, regardless of its political color. The reforms suggested in this paper involve a broad agenda of macroeconomic, social, structural and institutional measures. This agenda goes beyond the purely economic sphere and also addresses issues of legal, administrative and political reforms. The politics and political economy of any future reform effort will not be easy because the country is deeply divided in political, cultural, regional and ethnic terms. In such an environment, crucial reforms and strategic decisions will require a wider cross-party political consensus.
Authored by: Marek Dąbrowski
Published in 2007
Does European economic integration create more inequality between domestic regions, or is the opposite true? We show that a general answer to this question does not exist, and that the outcome depends on the liberalisation scenario. In order to examine the impact of European and international integration on the regions, the paper develops a numerical simulation model with nine countries and 90 regions. Eastward extension of European integration is beneficial for old as well as new member countries, but within countries the impact varies across regions. Reduction in distance-related trade costs is particularly good for the European peripheries. Each liberalisation scenario has a distinct impact on the spatial income distribution, and there is no general rule telling that integration causes more or less agglomeration.
Authored by Arne Melchior
Published in 2009
Institutional harmonization is an important part of European integration, and its effects are more far reaching than the effects of trade liberalization. In its policy towards neighbors (the European Neighborhood Policy, ENP), the EU puts a lot of stress on the desirability of institutional harmonization, at least in certain areas. In particular, the free trade agreements that the EU envisages concluding with its Eastern neighbors will involve substantial harmonization of product standards, competition policy and a range of other policies and processes. At the very least, the harmonization will have to focus on the areas that relate to improvement of market access, i.e. removing restrictions to trade, harmonizing product standards and the systems of quality control etc. But in order to implement the new standards and rules, the EU neighbors will have to reform many related areas, so that the harmonization will encompass the whole system of economic governance. Not only will such a revamp help attaining better access to the EU markets, but also (and probably more importantly) it will stimulate modernization of the neighbors' economies and bring much needed efficiency gains.
In measurement of benefits of harmonization we refer to two methods: one based on the computable general equilibrium (CGE) modeling of welfare effects of better market access, and the other employing a growth model to estimate the wider effects of European institutions on growth. The estimation of costs of harmonization bases on extrapolation of the analogous costs in other countries, in particular CEE. These costs include expenses by a public sector on introduction of harmonization measures, as well as private sector expenses and investments related to their implementation.
Authored by: Anna Kolesnichenko
Published in 2009
This paper analyzes the costs of (partial) institutional harmonization with the EU acquis which countries of the former USSR are expected to conduct under their Partnership and Cooperation Agreements with the EU and European Neighborhood Policy Action Plans. The public sector will have to take an effort of the transposition and adaptation of EU norms, as well as ensuring that they are complied with. Yet, the major part of the adjustment costs will fall on the private sector, as enterprises will have to make substantial investments to comply with new product requirements and business practices.
In this study we used the method of extrapolation of average costs for CEE countries’ harmonization with acquis to estimate the potential harmonization costs for the neighboring countries based on internationally comparative macroeconomic indicators like sectoral and total value added. This involved estimating the EU pre-accession support for the CEE countries by main areas as a percentage of the total or sectoral value added, determining the expected degree of limited harmonization in the ENP countries and estimating “coefficients of limited harmonization”, which was subsequently used for adjustment of the estimated cost of full harmonization.
Authored by: Veliko Dmitrov
Implementation of the European internal market and East-West integration has been accompanied by dramatic change in the spatial distribution of economic activity, with higher growth west and east of a longitude degree through Germany and Italy. In the east, income growth has been accompanied by increasing regional disparities within countries. We examine theoretically and empirically whether European integration as such can explain these developments. Using a numerical simulation model with 9 countries and 90 regions, theoretical predictions are derived about how various patterns of integration may affect the income distribution. Comparing with reality, we find that a reduction in distance-related trade costs combined with east-west integration is best able to explain the actual changes in Europe's economic geography. This suggests that the implementation of the European internal market or the Euro has "made Europe smaller". In Central Europe, capital regions grow faster and there are few east-west growth differences inside countries. There is no convincing support for the hypothesis that European integration had adverse effects on non-members.
Authored by: Arne Melchior
Published in 2009
The aim of this study is to estimate the impact of the removal of NTBs in trade between the EU and its selected CIS partners: Russia, Ukraine, Georgia, Armenia and Azerbaijan (CIS5). The report includes a discussion of methodologies of measurement of non-tariff barriers and the impact of their removal, including a review of previous studies focusing on CEE and CIS regions. Further, we employ a computable general equilibrium model encompassing the following three pillars of trade facilitation: legislative and regulatory approximation, reform of customs rules and procedures and liberalization of the access of foreign providers of services. We conclude that a reduction of NTBs and improved access to the EU market would bring significant benefits to the CIS5 countries in terms of welfare gains, GDP growth, increases in real wages and expansion of international trade. The possible welfare implications of deep integration with the EU range from 5.8% of GDP in Ukraine to sizeable expected gains in Armenia (3.1%), Russia (2.8%), Azerbaijan (1.8%) and Georgia (1.7%).
Authored by: Maryla Maliszewska, Irina Orlova, Svitlana Taran
Published in 2009
The The purpose of this paper is to analyze the various challenges facing European integration and the EU institutional architecture as result of the global financial crisis. The European integration process is not yet complete, both in terms of its content and geographical coverage. It can be viewed as a kind of intermediate hybrid between an international organization and a federation, subject to further evolution. This is also true of the Single European Market and the Economic and Monetary Union, which form the core of the EU economic architecture. Certain policy prerogatives (such as external trade, competition, and the Common Agriculture Policy) are delegated to the supranational level while others (such as financial supervision or fiscal policy) remain largely in the hands of national authorities.
Authored by: Marek Dąbrowski
Published in 2009
This paper analyses the effect of the EU enlargement process on income convergence among regions in the EU and in the Eastern neighbourhood of the EU. The data used is NUTS II regions in the EU and Oblasts' of Russia over the period 1996-2004. The estimation techniques used take into account both regional and spatial heterogeneity. The main findings are that the regional income differences are reduced within EU15. The income convergence within the EU is mainly driven by reductions in the differences across countries rather than by a reduction in regional differences within countries. When differences in initial conditions in the regions are controlled for by fixed regional effects there are strong evidences of convergence among regions in all studied country groups.
Authored by: Fredrik Wilhelmsson
Published in 2009
The CIS countries' EU-related interests are very heterogeneous. The countries themselves differ not only in terms of their geopolitical and geo-economic situations, and how those affect their relations with the EU, but also in their levels of ambition in relation to the Union, as well as their specific sectoral interests. Some Eastern Partners have set full EU membership as their strategic goal; others want to enjoy the benefits of the common free market, and the ambitions of others are limited to developing cooperation in selected areas. Similarly, the EU's policy towards its Eastern neighbourhood is multi-level and very diverse, considering as it must the different characters of mutual relations. The EU and most of its Eastern partners have a sufficient number of common or converging interests to expect reasonable cooperation between the two sides to develop and deepen. However, serious challenges and problems exist that may prevent this positive scenario from being realised.
Authored by: Marcin Kaczmarski, Wojciech Kononczuk, Marek Menkiszak
Published in 2008
During the last two decades the CIS countries have received very significant amounts of technical assistance from international development organizations and bilateral donors. While this has played a positive and important role in the transformation of these societies, practically all stakeholders currently share the opinion that many problems have accumulated in the area of technical cooperation with CIS countries. This paper intends to outline these problems, analyze their underlying reasons - including the changing environment for technical cooperation in the CIS - and the interaction of the interests of beneficiaries, donors and providers in the process of implementing technical cooperation projects. The analysis suggests that a good understanding, recognition and coordination of the interests of all TC stakeholders and a reduction in the information gap between the various participants in the technical cooperation process are necessary for improving the effectiveness of technical cooperation.
Authored by: Aziz Atamanov, Roman Mogilevsky
Published in 2008
The CIS region is of vital importance for the EU countries considering that both are interconnected through cooperation or membership in supranational political and economic institutions (OSCE, WTO, OECD, NATO, etc.), through transport and energy corridors, through investment, trade and migration trends.
The interests of EU member states in the region are very diverse and are sometimes pursued in contradiction to one another. The overarching interest is of an economic nature, given the large reserves of natural resources (particularly gas and oil) and due to the size of the CIS market of 277 million consumers. Security and immigration issues also rank high on the list, whereas EU countries are less concerned with democratisation trends in the CIS. Russia is the most important CIS partner for a majority of EU countries. Energy plays a disproportionally high role in EU member states (MS) - Russia relations and is also a strong determinant of the overall heterogeneity of EU MS policies towards Russia. The type of bilateral relations which the EU MS maintain with one sub-region of the CIS (particularly the EENP, but increasingly also Central Asia) also affects their relations with Russia. Cultural closeness and a common history still play a large part in the development of bilateral relations. The accession to the EU of Central and Eastern European states has altered the existing relations between them and their eastern CIS neighbours, thereby also modifying their interests in the region. Regrettably, the EU's policies towards Russia and the EENP region have not yet been able to provide a playing field able to compensate for this alteration.
Thus, the present report studies the various interests (political, security, economic, cultural) which underpin relations between the EU member states and the CIS countries and also discusses the latest developments in EU policies towards a specific CIS sub-region (Russia, the Eastern ENP and Central Asia), thereby providing a broad picture of the type of interests, how they are pursued by the EU member states and where these intersect or clash.
Authored by: George Dura
Published in 2008
The paper presents new results on within-country regional inequality in per capita income for 36 countries during 1995-2005; focusing on Europe but with some non-European countries included for comparison. In 23 of the 36 countries there was a significant increase in regional inequality during the period, and in only three cases there was a reduction. Regional inequality increased in all countries of Central and Eastern Europe, while for most Western European countries there was little change. For the EU-27 as a whole, there was a modest increase in within-country regional inequality, but convergence across countries. The latter effect was quantitatively more important, so on the whole there was income convergence in the EU-27, especially after 2000. Regional inequality is particularly important for some large middle-income countries such as China, Russia and Mexico. In such countries there may however be considerable price differences across regions, and the use of common price deflators for the whole country may lead to a biased assessment of regional inequality.
Authored by: Arne Melchior
Published in 2008
The paper discusses possible directions and magnitudes of the relationship between the social security driven tax wedge, employment and shadow employment in Russia and Ukraine. The first section presents a summary of the economic and institutional background for development of the current size and structure of the socially driven tax wedge in both countries. The second section presents some theoretical considerations on the relationship between the social protection system, tax wedge, non-employment and finally, shadow employment. The third section contains an attempt to econometrically estimate the magnitude of the possible relationship between the tax wedge and total employment rates in both countries. In the fourth section, the authors try to discover the mechanism of influence of the last reform of the Ukrainian payroll tax system on the structure and size of shadow employment in the country. The last analytical section closes the circle leading the reader back from shadow employment to wages and finally to the issue of access to social security institutions. The last section concludes.
Authored by: Marek Gora, Oleksandr Rohozynsky, Irina Sinitsina, Mateusz Walewski
Published in 2009
The paper discusses possible directions and magnitudes of the relationship between the social security driven tax wedge, employment and shadow employment in Russia and Ukraine. The first section presents a summary of the economic and institutional background for development of the current size and structure of the socially driven tax wedge in both countries. The second section presents some theoretical considerations on the relationship between the social protection system, tax wedge, non-employment and finally, shadow employment. The third section contains an attempt to econometrically estimate the magnitude of the possible relationship between the tax wedge and total employment rates in both countries. In the fourth section, the authors try to discover the mechanism of influence of the last reform of the Ukrainian payroll tax system on the structure and size of shadow employment in the country. The last analytical section closes the circle leading the reader back from shadow employment to wages and finally to the issue of access to social security institutions. The last section concludes.
Authored by: Marek Gora, Oleksandr Rohozynsky, Irina Sinitsina, Mateusz Walewski
Published in 2009
Both the economic and the political economy arguments point to fast EMU accession of NMS. Looking at the 'classical' optimum currency area criteria, i.e. trade integration, co-movement of business cycles and actual factor mobility, NMS' record is not worse, on average, than that of the current Eurozone members, and should further improve before Eurozone entry, decreasing risk of their exposure to idiosyncratic shocks. After joining the EMU, the common currency should help NMS to develop additional intra- EMU trade links, further synchronize business cycle and increase factor mobility. Both theoretical arguments and empirical experience demonstrates that so-called real convergence accompanies nominal convergence, and that there is synergy rather than a trade-off between the two.
Authored by: Marek Dąbrowski
Published in 2005
This paper evaluates the implications of Eastern EU enlargement with the use of a computable general equilibrium model. The focus is on accession to the Single Market, with explicit modelling of the removal of border costs and costs of producing to different national standards. The results indicate significant welfare gains for the CEECs (volume of GDP increases by 1.4-2.4%) and modest gains for the EU. The steady state scenarios, which allow for the capital stock adjustment in response to higher return to capital, more than double the static welfare gains.
Authored by: Maryla Maliszewska
Published in 2004
This paper analyzes the direct and indirect income effects of international labor migration and remittances in selected CIS countries. The analysis is based on computable general equilibrium (CGE) models for Moldova, Ukraine, Georgia, Kyrgyzstan, and Russia. All net emigration countries would experience a sharp contraction of private consumption in the absence of remittances. In Russia, the main effect of immigration has been to hold down the real wage (as potential capital stock adjustments in response to immigration are not reflected in the authors comparative-static modeling framework). The paper concludes that because of the important contribution of migration and remittances to stabilizing and sustaining incomes in many CIS countries, enhanced opportunities for legal labor migration should figure prominently in any deepening of bilateral relations between CIS countries and the European Union under the European Neighborhood Policy.
Authored by: Aziz Atamanov, Toman Omar Mahmoud, Roman Mogilevsky, Kseniya Tereshchenko, Natalia Tourdyeva
Published in 2009
Ainura Uzagalieva
Vitaly Vavryschuk
This working document offers a conceptual framework for understanding the processes underpinning the external dimension of EU Justice and Home Affairs (ED-JHA). Practically, it defines how the export of JHA principles and norms inform the geopolitical ambitions of the EU, i.e. the use of space for political purposes, or the control and management of people, objects and movement. The author begins by investigating how the ENP reconfigures the ED-JHA, and then goes on to discuss various conceptual stances on governance, specifically institutionalism, constructivism, and policy instruments. To conclude he traces the evolution of this external dimension, emphasising, whenever possible, its continuities and bifurcations. Overall, the aim is to ascertain the extent to which conceptual designs clarify or advance our knowledge of the contents and rationales of the ED-JHA.
Authored by: Thierry Balzacq
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
Since May 1, 2004 the European Union's new member states (NMS) have been subject to the same fiscal rules established in the Treaty on the European Union and Stability and Growth Pact (SGP) as the old member states (OMS). The NMS entered the EU running structural fiscal deficits. More than half of them (including the biggest ones) breach the Treaty's actual deficit limits and are already the subject of the excessive deficit procedure. A high rate of economic growth makes the fiscal situation of most NMS reasonably manageable in the short- to medium-term, but the long term fiscal outlook, mostly connected with the consequences of an aging population, is dramatic. The NMS should therefore prepare themselves now to be able to meet this challenge over the next decades (the same goes for the OMS). In addition, the perspective of EMU entry should provide the NMS with a strong incentive to reduce their deficits now because waiting (and postponing both fiscal adjustment and the adoption of the Euro) will only result in higher cumulative fiscal costs. The additional financial burden connected with EU accession cannot serve as excuse in delaying fiscal consolidation.
In spite of the growing debate on the relevance of the EU's fiscal surveillance rules and not excluding the possibility of their limited modification, they should not be relaxed. Frequent breaching of these rules cannot serve as an argument that they are irrelevant from the point of view of safeguarding fiscal prudence and avoiding fiscal 'free riding' under the umbrella of monetary union. Any version of fiscal surveillance rules (either current or modified) must be solidly anchored in an effective enforcement mechanism (including automatic sanctions) at the EU and national levels.
Authored by: Malgorzata Antczak, Marek Dabrowski, Michal Gorzelak
Published in 2005
This paper reviews the published literature on the definition and measurement of the administrative and compliance costs of taxation, with special reference to VAT (including evasion and fraud) in the European Union.
Written by Luca Barbone, Richard M. Bird, and Jaime Vasquez-Caro. Published in March, 2012.
See more on our website: http://www.case-research.eu/en/node/57573
Similar to CASE Network Studies and Analyses 386 - EU's Eastern Neighbours: Institutional Harmonisation and Potential Growth Bonus (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.
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.
The paper discusses the role of the state in shaping an economic system which is, in line with the welfare economics approach, capable of performing socially important functions and achieving socially desirable results. We describe this system through a set of indexes: the IHDI, the World Happiness Index, and the Satisfaction of Life index. The characteris-tics of the state are analyzed using a set of variables which describe both the quantitative (government size, various types of governmental expenditures, and regulatory burden) and qualitative (institutional setup and property rights protection) aspects of its functioning. The study examines the “old” and “new” member states of the European Union, the post-communist countries of Eastern Europe and Asia, and the economies of Latin America. The main conclusion of the research is that the institutional quality of the state seems to be the most important for creation of a socially effective economic system, while the level of state interventionism plays, at most, a secondary and often negligible role. Geographical differentiation is also discovered, as well as the lack of a direct correlation between the characteristics of an economic system and the subjective feeling of well-being. These re-sults may corroborate the neo-institutionalist hypothesis that noneconomic factors, such as historical, institutional, cultural, and even genetic factors, may play an important role in making the economic system capable to perform its tasks; this remains an area for future research.
More from CASE Center for Social and Economic Research (20)
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
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
The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
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
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
3. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
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
2
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.
4. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
3
Contents
Abstract .......................................................................................................................... 5
1. Introduction................................................................................................................ 6
2. Link between institutional reforms and growth...................................................... 7
2.1. Modelling approach ............................................................................................ 9
2.2. Measuring institutional reforms....................................................................... 10
2.3. Recent papers using EBRD transition indicators .......................................... 12
3. The link between European integration and reforms ........................................... 14
3.1. Single Equation Models.................................................................................... 18
3.2. Dynamic panel estimation................................................................................ 23
4. Joint model of integration, reforms and growth................................................... 27
5. Potential growth bonus: results of simulations.................................................... 30
6. Concluding remarks................................................................................................ 33
References ................................................................................................................... 35
5. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Artur Radziwill is an economist interested in public finance, monetary economics and political
economy of reform. He graduated from the Columbia University, University of Sussex and
University of Warsaw with degrees in economics. He received his PhD degree from the
University of London. He was a Vice-President at CASE - Center for Social and Economic
Research between 2004 and 2007.
Pawel Smietanka is graduate student at Warsaw School of Economics with research interest in
financial economics and econometrics.
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5
Abstract
This paper provides the quantitative estimate of the potential growth bonus for CIS countries,
and in particular EU’s Easter Neighbours, that can be a result of deeper institutional
harmonisation with the EU. Econometric investigation involving instrumental variable,
simultaneous equation and dynamic panel techniques documents the strong positive link
between growth performance and reforms, as well as between reforms and European
integration. The paper derives the range of possible values of growth bonus from the deepened
neighbourhood cooperation between 1 and 3.8 with the median at 1.8 percentage points. The
least growth bonus is expected through basic liberalization reforms, while countries with a
considerable institutional gap are likely to gain the most.
7. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
1989 1993 1997 2001 2005
Baltic States Eastern Neighbors CIS
Romania & Bulgaria CEE
6
1. Introduction
The aim of this paper is to provide the quantitative estimate of the potential growth bonus for CIS
countries, and in particular EU’s Easter Neighbours1, that can be a result of deeper institutional
harmonisation with the EU. This reflects the presumption that despite the fast rates of economic
growth of CIS countries in recent years (Figure 1), there are substantial reserves of longer term
growth potential that can be freed if structural features of these economies improve as a result of
institutional harmonisation.
Figure 1. Comparative growth performance
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
-30.0
Source: EBRD. Presented groups of countries encompass a) Baltics: Estonia, Latvia, Lithuania b) CEE (Central &
Eastern Europe): Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Bulgaria and
Romania c) CIS (Commonwealth of Independent States): Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan,
Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine, Uzbekistan d) Eastern Neighbours: Armenia, Azerbaijan, Belarus,
Georgia, Moldova, Ukraine plus Russia (although Russia is not formally a ENP country).
1 For the purpose of this paper, by Eastern Neighbours we will understand countries of the former Soviet Union that
are most likely to benefit from institutional harmonisation with the EU, namely: Armenia, Azerbaijan, Belarus, Georgia,
Moldova, Russia and Ukraine.
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In order to quantify potential growth bonus, this paper combines results of econometric studies
on the impact of institutional reforms on growth with those on the impact of European integration
on institutional reforms. It also comments briefly on other channels of impact of the EU
integration on growth. The approach can be therefore best summarized by the Figure 2 that
illustrates the multi-direction links among process of integration, reforms and growth.
Economic
Growth
7
Figure 2. Conceptual approach
EU integration
process
Institutional
reforms
This paper reviews existing studies and their results for broad assessment of potential growth
bonus. As the existing literature on links between reforms and growth is abundant, the thrust of
original econometric work presented in this paper is directed at much less researched link
between EU integration and reforms. Existing and new results are combined in the concluding
section of this paper. It presents the range of possible quantitative estimates of the growth
bonus for Eastern neighbours. However, it also offers a word of caution about the robustness of
achieved results due to uncertainty about the actual scope of institutional harmonization under
the European Neighbourhood Policy, structural and macroeconomic particularities of
neighbouring economies and last but not least the sensitivity of results to exact econometric
specifications.
2. Link between institutional reforms and growth
The literature examining the growth experience of transition economies over the last decade is
instrumental in understanding through which channels the European integration or deepened
neighbourhood cooperation with the EU can stimulate growth. The literature that has been
surveyed by Campos and Coricelli (2002) and Mickiewicz (2005) has focused mostly on reform
strategies, macroeconomic policies and initial conditions to explain the variation in growth across
9. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
transition economies. Importance of initial condition has been showed in several contributions
since the early study by Aslund et. al (1996).2 Virtually all researchers agree that initial
conditions do matter, but their influence on growth diminishes with time (Falcetti et al., 2006).
Apart from initial conditions, growth is highly influenced by macroeconomic stabilisation policies.
Common approach in the literature is to use inflation rate or the size of general government
fiscal balance as measures of stabilisation effort (Falcetti et al., 2006). Since a positive feedback
effect exists in the way that growth affects positively stabilisation, one needs to be cautious
when interpreting the results. In most studies, the positive relationship between stabilisation and
growth is confirmed. For example Mickiewicz (2005) shows that, controlling for endogeneity, any
positive output response to inflationary impulses in transition economies is a myth.
Process of transition means implementing free market structures and institutions that would
foster them. Since the early time of transition, the quasi-consensus (referred to as Washington
Consensus - most famously codified by Williamson, 1990) was formed about the reforms
needed to be implemented in order to complete the process of transformation. According to
Kornai (1994) these necessary reforms included price liberalisation and trade and foreign
exchange liberalisation to enforce the move from the sellers’ to buyers’ market as well as
privatisation, elimination of subsidy programmes and liberalisation of financial markets for the
purpose of enforcement of hard budget constraints. Although later on several observers
concluded that Washington consensus was not sufficient for successful transition (Kuczynski
and Williamson, 2003) which required even deeper institutional changes, empirical studies
presented below confirmed that the impact of reforms on growth is strong and robust.
Havrylyshyn (2006) notes the “important similarity or at least consistency” between the process
of adoption of acquis with the elements of the Washington consensus in guiding the progress
towards market economy. Therefore, the intuition behind the primary link between the deepened
neighbourhood cooperation with the EU and economic growth through institutional
harmonization is well justified.
2 Measuring the initial conditions is a complicated task and various measures can serve as a proxy. To measure the
effect of initial conditions authors use such variables as GDP per capita at the beginning of transition, pre-transition
growth rate, trade dependence on CMEA, degree of over-industrialisation, urbanization rate, natural resources
dummy, years spent under central planning, dummy for pre-transition existence as a sovereign state, repressed
inflation or black market premium. Another commonly used measure is the distance from the country’s capital to
Brussels. Common approach in the literature is to create a comprehensive measure of initial conditions. For this
purpose principal components analysis is used. In other studies (Mickiewicz, 2005) authors do not include any proxies
for initial conditions. Instead, in each equation, full set of fixed country effects is included.
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9
2.1. Modelling approach
The approach to the modelling of growth has been changing over time in search of precise links
between the reforms and economic growth. Different econometric specifications helped to
understand more accurately the influence of reforms on growth and possible feedback effects
from growth to reforms. Despite large diversity of models, recent studies seem to present
unambiguous picture of the impact of reforms on growth. However, the exact size of impact
remains elusive. The results of the studies are sensitive to definition of reform variables, the
choice of specification as well as various sources of omitted variable bias (Babetskii and
Campos, 2007).
Following taxonomy presented by Mickiewicz (2005) one can distinguish between two
generations of models. In the first type of models attention was focused on long-term effects of
reforms. Authors preferring this kind of modelling use GDP growth averaged over a number of
years as a dependent variable (Fidrmuc, 2003 Beck and Leaven, 2006, Godoy and Stiglitz,
2006). In this approach temporary effects are neglected and therefore it does not allow for any
insights into short term effects of developing institutions. To capture short-term effects, more
recent literature uses panel data techniques (Falcetti et al., 2006, De Macedo and Martins, 2006,
Havrylyshyn and van Rooden, 2003, Grosse and Trevino, 2005, Neyapti and Dincer, 2005,
Eschenbach and Hoekman, 2006, Lawson and Wang 2005, Mickiewicz, 2005, Merlevede, 2003,
Koivu and Sutela, 2005). Using panel data one can test more sophisticated hypothesis regarding
time dimensions in the relationship between reforms and growth. For example, some studies
showed that although long-term impact of reforms on growth is in most cases positive and
significant, in some cases immediate impact of reforms is negative.
Endogeneity of reform variable vis-a-vis growth posed an important challenge for researchers.
The problem is that there can be a feedback effect of growth to reforms, which is likely to
influence significantly estimation results. In a meta-study Babetski and Campos (2007) showed
that ignoring the problem of endogeneity of reforms in relation to growth led to severely biased
results. Most routinely, the potential problem of endogeneity is addressed by instrumental
variables (Fidrmuc, 2003) or less often by more robust but also more complicated dynamic panel
techniques (Falcetti et al., 2006). Another popular approach is to study explicitly the possible
reversed causality from growth to reforms and include the relevant equation in the multi-equation
model that is estimated by three-stage least squares or GMM methods (De Melo et al., 2001).
11. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Despite different methodological approaches, results tend to be consistent and generally confirm
the positive impact of reforms on growth.
2.2. Measuring institutional reforms
Identifying theoretically sound measures of those institutions that are relevant for growth
(Campos and Coricelli, 2002) is another non-trivial challenge. There is not a single set of
indicators that is used by all researchers. For example, Fidrmuc (2003) analyzed impact of
democratization on growth by constructing variable that was a simple average of political
freedom and civil liberties indicators from Freedom House dataset. His choice is somehow
arbitrary - not only in terms of choice of the indicators that cover only a small part of changes
that took place in transition countries but also in terms of the way of aggregation of the
indicators. Another approach is presented by Grosse and Trevino (2005) who find variables
corresponding to level of corruption in government, political risk and rule of law relevant for
growth. They argue that by creation of fair rules of the game through eradication of corruption,
lower political risk and establishing sound rule of law countries are able to attract more foreign
direct investments which in turn can be a powerful engine of economic growth. Beck and Laeven
(2006) constructed the institutional development variable following the idea by Kaufman, Kraay,
and Mastruzzi (2004). Referring to different aspects of reforms they distinguished six dimensions
of institutional development: 1) voice and accountability 2) government effectiveness 3) rule of
law 4) regulatory quality 5) absence of corruption and 6) political stability.
The data source that is especially popular among researchers is the EBRD Transition Indicators
dataset. The reason behind this may be quite long time span, for which the data is available and
coverage of various dimensions of the transition process. The reputation for the first-hand expert
knowledge of transition economies by EBRD economists is another important factor. Datasets
computed by the EBRD contain eight basic reform indicators and five additional indicators for
different areas of infrastructure development. The scores vary from 1, referring to the state in
planned economy, to 4.33, representing standards of advanced market economies, with 0.33 of
the least possible change. Most of researchers compute a simple average of the eight indicators
consisting of initial-phase reforms, which include price liberalization, trade and foreign exchange
liberalization, and small-scale privatization, and second-phase reforms, which comprise large-scale
privatization, governance and enterprise reform, competition policy, banking reform and
interest-rate liberalization, and non-bank financial institutions.
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12. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
EBRD indicators show considerable differences across countries in institutional development.
Figure 3 plots average of eight transition indicators for a selected group of countries. It can be
clearly seen that after almost twenty years of transition there is still a substantial institutional gap
between Central Eastern European countries and their neighbours to the east.
Figure 3. Average of eight EBRD transition indicators
11
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Baltics Eastern Neighbors
CIS & Georgia & Turkeminstan Romania & Bulgaria
CEE
Source: EBRD. For the list of countries in each group see footnote to Figure 1.
Although EBRD Transition Indicators are so commonly used in the current studies one needs to
bear in mind some of their limitations (Falcetti et al., 2006). Firstly, in year 2000 the indicators
were backdated to include years 1989-1994. Hence, one need to be very cautious including
values of the indicators for the first years of transition. Secondly, increase in the value of the
indicators by one does not necessarily always mean the same. Most of countries found it easy to
improve quality of their institutions from the level of 1 to 2, they find it however difficult to
upgrade from 2 to 3, although the difference in scores is the same. Moreover, indicators
computed by the EBRD may not always reflect true current state of reforms in a given country.
They do not mirror reform commitment and far-reaching reforms are shown in the indicators with
a certain lag. Finally, Rzonca and Cizkowicz (2003) advise cautiousness when using EBRD
Transition Indicators due to existence of the upper bound of 4.33. Ratings can quite quickly rise
at the early stage but in subsequent periods must grow at a lower pace. Another issue concerns
13. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
high correlation between indicators from the dataset, which does not allow including them
separately into the regression equations due to problem of multicolinearity of the indicators used
to measure progress in different areas. In most of the studies authors use simple averages,
although it requires the implicit assumption that improvement in one dimension has the same
effect as an improvement in another dimension. Some authors use principal component
analysis, which unfortunately poses difficulties in interpretations. The choice to isolate influence
of only one specific reform indicator brings about the risk of omitted variable bias.
2.3. Recent papers using EBRD transition indicators
The literature presenting impact of reforms on growth in transition countries is rich and
abundant. For the purpose of our study we focused on the latest papers that use EBRD datasets
to construct reform indicator and that can be therefore easily reproduced for the benefit of
growth bonus simulations. Transition Indicators are used in the studies in various configurations:
as simple or weighted averages of all basic indicators as in Merlevede (2003) and Falcetti et al.
(2006), and as average of specific subset of indicators as in Eschenbach and Hoekman (2005),
Mickiewicz (2005) and Koivu and Sutela (2005). We describe these papers in more detail below
and use them as the basis of our further investigation.
Falcetti et al. (2006) present econometric evidence on the impact of institutions on growth.
Controlling for a variable corresponding to initial conditions of a given country and including
other important determinants of growth, like output recovery, oil prices, macroeconomic stability
and external growth, into the regression equation authors found that progress in transition in one
period translates into higher growth rate in the following period. For the purpose of the study
authors construct an average of eight basic EBRD Transition Indicators that serve as a measure
of reform. The results are significant and seem to be robust to changes in specification.
Innovative in the study is using output recovery variable to explain the phenomenon of
extraordinary growth in countries reluctant to implement reforms. Furthermore, initial conditions
were proved to have a significant but diminishing impact on growth. The authors tackled also
problem of endogeneity of the reform variable. The system of equations used in the study seems
to confirm conjecture of other researchers that there might be a strong feedback effect from
growth to reforms. Authors indeed show that such a relationship exists and is significant, but the
impact on reform indicator is in fact not very big.
Eschenbach and Hoekman (2005) also find that progress in transition can have positive impact
on growth. The reform indicator analysed by them is a simple average of subset of indicators
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that according to them describe best the investment climate. They made however an important
qualifiation, namely the main channel through which reform influence growth is through inflow of
foreign direct investment and improvement of domestic investment. Controlling for commonly
used determinants of growth they found that reforms in investment climate policies stimulate
inflow of FDI, which translates into higher growth. Similarly to the previous study they found
evidence of a “virtuous circle” of growth, political and institutional reforms.
Different subset of transition indicators was considered by Mickiewicz (2005). Choosing three
out of eight basic indicators (price liberalization, trade and forex system, and small-scale
privatisation) and taking account on the fact that transition indicators are bound from above
(Rzońca and CiŜkowicz, 2003) his study supports results of the previously presented research of
Falcetti et al. (2006). Using a system of equations to alleviate the problem of endogeneity they
found a consistent link between political freedom and reforms, positive and significant
relationship between reform in one period and growth in the subsequent period.
Once a country decides to embark on a new, twisting path leading it towards market economy,
costs of abandoning this way may be significant. Merlevede (2003) drew attention to the reform
reversals and examined their impact on growth. Controlling for the level of reform they showed
that reform reversals have an overall negative effect on growth. Using weighted average of basic
EBRD Transition Indicators as a proxy for reforms they define reform reversal as a drop in this
average. In their paper they found that allowing the indicator of reform to decrease results in a
significant drop in the cumulative growth effects. Only after 4 to 5 years the no reversal path of
growth is reached again. Results of their study are a warning to all policymakers in transition
countries who decide do not reform their economies. They showed moreover that a reversal is
more harmful at the higher levels of reform.
In another study Koivu and Sutela (2005) focus on financial institutions and try to examine the
link between development of the banking sector and real GDP growth. In their model they
consider two variables to measure improvement in the financial sector. Using a system of
equations they conclude that the interest rate margin is negatively and significantly associated
with the economic growth, which highlights the importance of banking sector in transition
economies.
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Quantitative results from these studies are used in order to estimate the size of potential growth
bonus, in case of more energetic reforms resulting from the deepening of neighbourhood
cooperation with the EU.
3. The link between European integration and reforms
The evidence of correlation between EU accession and the successful second-stage institutional
reform process is rather clear as it is attested by much better scores of countries progressing
through the European integration process. It is much more difficult to prove causality. Our
preferred explanation is that the EU membership perspective is so attractive politically for the
candidate countries that it helps to anchor effectively the entire reform process. Although internal
dynamics are essential (Acemoglu 2005), external anchoring can play a benevolent role in
overcoming these problems 3. While unconditional foreign aid often discourages reforms (Sachs,
1994; Casella and Eichengreen, 1996), the role of traditional conditionality is to ensure that
countries do not delay necessary changes (IMF, 2001, and Drazen & Isard, 2004). However,
forced reforms are often illusory and unsustainable. On the other hand, Roland and Verdier
(2003) define external anchoring of reform as a broader commitment vehicle that promotes
genuine domestic support for reforms. Piazolo (1999) argues that European integration provided
the important credibility boost to the reform agenda. Berglof and Roland (1997) argue that the
EU accession process provided external anchoring which proved essential in reducing the risk of
reform deadlock and reform reversals. Consequently, the EU accession prospects explain much
of the “great divide” observed between the economic performance in Central and Eastern
Europe and the Baltics versus CIS countries. Several more recent contributions draw similar
conclusions (Wolf, 1999, Mizsei, 2004, Roland, 2005, Dabrowski and Radziwill, 2005). In the
terminology proposed by Havrylyshyn (2006), the effect of potential membership provides both
the “beacon effect”, attracting the country to the “safe haven” of stable, democratic and richer
societies, and the “navigation chart effect” of instructions needed to reach this “safe haven”.
These studies often argue that EU accession was essential for the medium-term progress of
3 The interplay between two broad factors determining the choice of appropriate social, political and economic
institutions: key domestic political actors and interest groups on the one hand , and external policy transfer processes,
in particular Europeanization, on the other, is discussed in detail in Cernat (2006). Hellman (1998) focuses on
domestic political dimension of the post-communist transition. Kaufmann (2004) claims that “the interplay between the
elite’s vested interests and the political dynamics within a country, in turn affecting governance and corruption, has
been often under-emphasized”.
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institutional reforms, even if the success of early economic liberalizations was less dependent on
the European factor.
However, other observers may argue that the membership perspective emerges as a result of
progress in reforms or claim that some unobservable and fundamental factor, like geography,
culture and religion can simultaneously drive both processes. These are not mutually exclusive
explanations and we suspect a virtuous circle. Better initial conditions of some countries made
future EU membership more realistic, which stimulated reforms through an external anchoring
mechanism. Reforms, in turn, enabled subsequent stages of the integration process and raised
hopes of membership even more. This again stimulated reforms to complete the virtuous circle.
Similarly, Havrylyshyn (2006) points out that EU integration has both exogenous and
endogenous elements. The exogenous element was probably stronger immediately after the fall
of the old regime and the endogenous element gained importance as the fulfilment of the
Copenhagen criteria and adoption of acquis influenced the speed of integration.
Box 1: Four hypotheses by Havrylyshyn (2006)
1. A more favourable “offer” of membership in the early 1990s encouraged earlier
15
reforms
2. Strong demand for membership drives early reforms regardless of the signal from
the EU
3. Strong progress in reforms induces a more favourable stance by the EU
4. Negative stance of the EU (”use of a “stick”) in a country with strong demand for
membership, induces acceleration of progress
The virtuous circle was reinforced by trade and investment integration that promoted growth,
made reforms more popular and strengthened constituencies for further integration and
accession, while obviously, it was itself conditional on the progress of reforms and adopting the
acquis. In our view, the incidence of these virtuous circles does not reduce the benefits of
European integration prospects; on the contrary, it makes the cost of early exclusion from the
process even higher in terms of reforms.
We have some indirect evidence of the existence of causality from integration towards reform. In
particular, the exogenous shift in the European integration strategy in Helsinki in 1999 led to the
acceleration of reforms in affected countries. The same effect was repeated in the Western
Balkan region as a result of launching the Stability Pact for South-Eastern Europe. The open
threat of exclusion of Slovakia from the EU and NATO enlargement in the second half of the
1990s clearly triggered the turnaround in political developments in that country. It is also
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noteworthy that reformist governments in CIS countries that have emerged as a result of recent
democratic revolutions tended to declare EU and NATO membership as their strategic goals
(Georgia, Ukraine). This suggests that countries actively seek the external anchoring.
However, we aim at providing some econometric evidence beyond this discursive argument. The
lack of previous attempts to quantify the impact of accession process (and its different stages)
on second-stage institutional reforms provides a major challenge for quantification of the
potential growth bonus of deepened neighbourhood cooperation with the EU. Attempts to
econometrically test the impact of the EU accession process on reforms, or more broadly, to
verify various determinants of reforms in transition economies, are rare. This is in striking
contrast to the rich literature that links the growth in transition countries to the progress in
reforms, as surveyed above. De Melo et al. (2001) attempt to explain the progress of economic
liberalization by initial conditions and political reforms in econometric terms; however, this study
fails to account for the role of the European integration process. In addition, it focuses
exclusively on economic liberalization (or first-stage reforms) and neglects the progress of
institutional (or second-stage) reforms.
Firdmuc (2003) conducts an econometric analysis of the interaction between democratisation,
economic liberalization and economic performance. However, while he comments that “the high
speed of democratization reflected not only the desire of these countries’ citizens to live in
democracy, but also the encouragement or outright pressure from Western governments,
international organizations, and especially the European Union, which made democracy an
explicit precondition for accession negotiations,” he does not explore the impact of accession on
democratisation or economic reforms econometrically.
Finally, several contributions studied determinants of reforms in the region, often as part of the
joint investigation of growth and reform processes, especially through approaches involving
simultaneous equation models (for example Heybey and Murell (1999), Wolf (1999), De Melo et
al., 2001, Merlevede, 2003, Mickiewicz, 2005 and Falcetti et al, 2006). Unfortunately, these
studies also failed to account for the importance of the European factor in the reform process.
The study that is closest to the spirit of our research is one by Di Tommaso et al (2005) which
defines institutional reform as a multidimensional, unobserved variable and estimates its
determinants using a MIMIC model (multiple indicator multiple cause model). While the authors
distinguish three major factors determining reform (economic, political and cultural) and explicitly
include the European integration variable (the signature of a major agreement with the EU), they
do not study the impact of European integration in-depth. In particular, they treat equally both
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the Association Agreements that were intended to lead to EU membership and the Partnership
and Cooperation Agreements that excluded such a possibility4. This means that their concept of
European integration is much broader than simply the EU accession process and differs from its
intuitive meaning. Nevertheless, the authors argue that the early liberalization and engagement
in the EU integration process can provide an important stimulus for institutional change.
As the identity problem is not trivial due to a high degree of possible endogeneity, omitted
variables and measurement errors, we investigate the impact of European integration on
structural reforms using several econometric techniques to provide results that are relatively
robust. We start with the estimation of a single equation using ordinary least squares and two
stage least squares. In the latter approach, we are instrumenting European integration in order
to reduce the problem of endogeneity. Afterwards, we run a series of dynamic panel data
estimations in order to best capture times series and persistence dimension of second-stage
institutional reforms. Finally, in the concluding section, we estimate a system of simultaneous
equations that attempts to capture explicitly interactions between growth, integration and
structural reform.
In order to quantify the impact of the EU accession (rather than the more broadly defined
‘economic integration’), we need to construct the EU accession measure in a different way from
Di Tomasso et al (2007), who does not distinguish between “pre-membership” and “non-membership”
agreements. Although non-membership agreements can provide multiple benefits
such as financial as well as trade and investment facilitation, they do not offer a membership
perspective and therefore cannot be expected to provide similar strong external anchoring as
compared to association agreements. Indeed, the most extreme view held by some observers is
that non-membership-oriented agreements are “too weak to make a difference on the general
direction of policy” (Wolczuk 2004). Havrylyshyn (2006) puts it even more bluntly when he states
that “nothing short of a possible future accession, no matter how unclear the timing, has much
effect”. This argument runs against the very idea of the ENP and we believe it is too extreme.
There is no reason to reject ex ante the possibility, that degree of institutional harmonisation can
be achieved even without formal membership in the context of deepened cooperation as part of
ENP. Nevertheless, it is necessary to distinguish carefully different types of agreements in the
econometric study.
The first basic option is to work with two separate dummy variables corresponding to these two
types of agreements. It is also possible to work with a full set of dummies representing stages of
4 PCA agreements are routinely signed with non-European developing countries.
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European integration, such as membership application, opening negotiations and accession,
and this is our preferred option. However, in some specifications we need to work with a single
variable describing synthetically the stage of European integration. We construct such a variable
in the following way. Each country gets one point upon signing the Association or Stabilization
Agreement, one point upon submitting EU membership application, one point upon opening
membership negotiations and one point upon EU accession. These points are summed up so
that the total score ranges from zero to four. It should be noted however, that such a synthetic
measure of accession is not without problems. Notably, it is constructed using arbitrary assigned
scores, with four possible values and later considered as continuous. Moreover, unit increases in
the value of this variable between each two subsequent stages of integration do not necessarily
have the same impact (as implicitly assumed by the linear specification). Because of these
problems, we prefer specification with the complete set of dummies whenever it is possible.
In all specifications we work with the panel of 27 transition countries with EBRD scores recorded
for the period between 1990 and 20065.
18
3.1. Single Equation Models
We start our investigation with a set of simple one-equation models that explain the progress of
reforms by the accession process and other relevant variables identified in the literature.
Columns 1 to 5 of Table 1 present estimation results derived by least squares estimation.
Results derived by two-stage least squares are reported in columns 6 and 7. Our specification
follows closely Di Tomasso et al.(2007) in taking into account major factors determining reforms:
economic, political and cultural. The basic specification takes the following form:
Inst (i,t) = β0 + β1 Priv (i,t-1) + β2 Lib (i,t-1) + β3 Stab (i,t-1) + β4 IniCond(i) + β5 Pol (i,t-1) + β6
EU(i,t-1) + u(i,t)
where i and t are country and time period subscripts, respectively, and variables are:
Inst (i,t) - synthetic measure of second-stage institutional reform. It is constructed as the simple
average of four EBRD indicators: 1) Governance and Enterprise Restructuring, 2) Competition
5 The list of countries include: Current EU members (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Poland, Romania, Slovakia, Slovenia), Western Balkans (Albania, Bosnia and Herzegovina, Croatia, Macedonia,
Serbia and Montenegro), European CIS (Belarus, Moldova, Russia, Ukraine), Transcaucasus (Armenia, Azerbaijan,
Georgia), Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan).
20. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Policy, 3) Banking Reform and Interest Rate Liberalisation and 4) Securities Markets and Non-
Bank Financial Institutions;
Priv (i,t-1) – one period lagged EBRD indicator of progress in Small Scale Privatisation;
Lib (i,t-1) – one period lagged synthetic measure of economic liberalization or first-stage reforms.
It is constructed as the simple average of two EBRD indicators: 1) Price Liberalisation, 2)
Foreign Trade and Exchange Rate Liberalisation;
Stab (i,t) – one period lagged synthetic measure of macroeconomic stability. In the first six
specifications we use the measure drawn from di Tommaso et al (2006): a variable taking the
value of 1 in the first year in which the budget deficit was below 5% of GDP and inflation below
30%, and increasing it by one unit every year in which this was maintained. In the last
specification, a simple measure of lagged fiscal budget balance is used.
IniCond (i) – synthetic measure of initial conditions. In the first specification we use the measure
drawn from Kitschelt (2001) that reflects state capabilities, as well as belief systems formed prior
to, as well as during, communist rule. This index captures both the pre-communist levels of
economic, human and institutional development as well as the character of communist rule that
determined the ease of collective action for reforms. The index assigns each country a score
from 1 (highly bureaucratic communism – Czech Republic) to 4 (patrimonial colonial Russian
periphery – Central Asia and Caucasus). In addition, and in order to provide a less arbitrary
measure of initial conditions, in the last specification we use country scores from the first
principal component of a factor analysis6 over a set of initial conditions indicators as reported by
Godoy and Stiglitz (2006). These indicators include: years spent under central planning, defence
spending as a share of GDP, degree of industrial distortion, trade distortion and black market
premium in the late 1980s. A higher value of principal component implies better initial conditions.
Pol (i,t-1) – one period lagged synthetic measure of political liberty. The state of political liberty is
calculated using the simple average from two Freedom House indices of 1) political rights and 2)
civil liberties.
EU (i,t-1) – denotes a lagged variable or a series of lagged variables that correspond to EU
integration as discussed more extensively below.
19
u(i,t) – an error term.
6 The principal component analysis is the statistical technique frequently used to reduce the dimensionality of a set of
data while maintaining as much data variability as possible (for discussion see Jolliffe, 2000). In order to ensure
efficient reduction of a number of variables, principal components are orthogonal linear combinations of the
eigenvector of the variance-covariance matrix of the original variables. Among them, the first principal component
preserves the most of variability.
21. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Table 1. Determinants of institutional reforms in a single equation specification
OLS OLS OLS OLS TSLS TSLS
1 2 3 4 5 6
Constant 1.69 1.55 1.58 1.61 1.66 1.21
Lagged privatization 0.08 0.09 0.09 0.09 0.07 0.19
3.01 3.49 3.51 3.45 2.40 5.32
Lagged liberalization 0.07 0.07 0.08 0.10 0.10 -0.01
2.34 2.37 3.00 3.52 3.25 -0.20
Lagged stabilization (Index
from Di Tomasso et al, 2007) 0.00 -0.01 -0.02 -0.02 -0.02
-0.03 -0.59 -1.79 -1.72 -2.32
Lagged stabilization (budget
balance) 0.03
20
1.23
Initial conditions Kitschelt
Index) -0.24 -0.19 -0.19 -0.21 -0.20
-8.59 -6.38 -6.89 -7.56 -6.22
Initial conditions (principal
component) 0.03
2.43
Lagged political liberty 0.08 0.06 0.05 0.04 -0.02 0.07
5.18 4.06 3.01 2.80 -0.65 0.96
Dummy - EU agreement
(as in Di Tomasso et al, 2007) 0.45
11.75
Lagged dummy- signed PCA
agreement 0.36 0.39 0.39 0.53 0.19
8.21 9.10 9.17 7.57 1.41
Dummy – signed association
agreement 0.59 0.47
12.02 7.11
22. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
OLS OLS OLS OLS TSLS TSLS
1 2 3 4 5 6
Lagged dummy – membership
application filed 0.05
21
0.66
Lagged dummy – negotiations
started 0.28
4.68
Lagged dummy – EU
membership 0.22
1.97
Lagged synthetic integration
indicator 0.26 0.44 0.22
13.64 6.39 1.84
Observations 384 384 384 384 384 384
R-squared 0.87 0.87 0.89 0.88 0.70 0.82
Adjusted R-squared 0.86 0.87 0.88 0.88 0.68 0.81
S.E. of regression 0.26 0.26 0.24 0.25 0.40 0.27
F-statistic 117.4 118.3 116.4 129.4 89.8 43.1
Prob(F-statistic) 0.00 0.00 0.00 0.00 0.00 0.00
first stage r - squared 0.69 0.69
t-statistics reported in italics, Source: own estimation, variables and data as described in the text
The specification shown in column 1 corresponds exactly to the specification from Di Tomasso
et al (2007), in particular the European Agreement variable combines both PCA and association
agreements. The coefficient next to this variable is significant as in the original paper. Because
we believe the nature and reform effects of these two agreements are very different, we estimate
the same equation with separate dummy variables for each of these two types of agreements.
Results are shown in column 2. As shown, these effects are indeed different; nevertheless, they
are both substantial and significant. Characteristically, the reform boost related to signature of
the association agreement is larger but not much larger than the one for the PCA. However,
column 3 shows that more advanced stages of European integration, such as membership
application, negotiations and membership, are linked to further reform bonuses. The total reform
gain from full integration is therefore much larger than signing a simple PCA agreement.
These results are informative; however, they potentially suffer from problems of endogeneity.
Namely, the error term u(t) is likely to be correlated with EU accession because the progress in
23. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
the EU accession process may well be endogenous and dependent on reforms as discussed
above. For this reason in the last two specifications we use the two stage least squares (TSLS).
However, in order to instrument European integration we have to approximate a set of dummies
with a single synthetic variable as discussed above. This variable is then instrumented with the
distance of the respected country’s capital from Brussels (as in Di Tommaso at al, 2006) and
other right hand side exogenous variables. The TSLS estimator shown in column 5 suggests an
even larger impact of European integration than the OLS estimator. In order to facilitate
comparison, we estimate exactly the same specification using OLS and the results are shown in
column 4. Characteristically, results are similar in terms of the significance and signs of
coefficients for all other variables when both methods of estimations are used.
Finally the last specification is aimed at minimizing the possibility that our results are driven by
misspecifications resulting from highly arbitrary variables originally used in Di Tomasso et al
(2007). In particular, we replace the Kitschelt Index by the first principal factor for capturing initial
conditions and use a lagged fiscal balance instead of the stability index proposed by Di
Tomasso et al (2007). The estimated positive and significant impact of European integration on
reforms is preserved, although the size of the coefficient is reduced.
Results also consistently show that previous privatisation progress and price and exchange rate
liberalization (lagged one period to avoid the endogeneity problem) promote institutional reforms
(although liberalization is insignificant in the last specification). This is consistent with the
consensus in theoretical and empirical literature. There is some evidence that macroeconomic
stabilisation discourages reform. This somehow surprising result was also detected by Di
Tomasso (2007) and it might reflect the role of the crisis in accelerating changes, a role that was
argued powerfully by Drazen and Grilli (1993), and Drazen and Easterly (2001). While the
adverse initial conditions reflected in the higher value of the Kitschelt index and lower principal
component affect reforms negatively, political liberty is positive and significant in OLS
estimations but not in the TSLS. Nevertheless, we tend to believe the existence of such a
positive impact, given results from other contributions, notably Firdmuc (2003), Falcetti (2006)
and Gerry and Mickiewicz (2006) that report that „countries most effectively embracing
democracy were most able to build the required consensus around reforms and growth”.
Similarly, Campos and Horvath (2007) conclude in their empirical study that democratization is
„the main determinant of reform”. Rodrik (2000) explains that we “can think of democracy as a
meta-institution for building good institutions”. Perhaps weaker evidence found in our paper is
precisely due to the inclusion of the variables measuring the progress of European integration.
22
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23
3.2. Dynamic panel estimation
Given the issue of institutional persistence and likely structure of correlations, we complement
our econometric investigation with the estimation implementing dynamic panel data techniques
with a lagged dependent variable included on the right-hand side of the equation. Several
papers used similar techniques for explaining international growth performance, such as Islam
(2005), Casella and Eichengreen (1996), Dollar and Kraay (2003). This approach was also used
to explain growth in transition, notably by Staehr (2005) and Falcetti et al (2006). Although the
time span of this study is rather short, this technique is useful for the investigation of reform
process as it helps to determine whether the impact of EU integration on reform is retained in the
dynamic specification. It also addresses issues of measurement error, endogeneity, and omitted
variables (Bond et al 2001), all of which are relevant for our study as discussed above.
Our specification takes the following form:
Inst (i,t) =α Inst (i,t-1) + β0,i + β1 Lib (i,t-1) + β2 Inf (i,t-1) + β3 Fis (i,t-1) +
+β4 Pol (i,t-1) + β5 EU (i,t-1) + u(i,t)
where i and t are country and time period subscripts, respectively, and variables are:
Inst (i,t) - synthetic measure of second-stage institutional reform. It is constructed as the simple
average of four EBRD indicators: 1) Governance and Enterprise Restructuring, 2) Competition
Policy, 3) Banking Reform and Interest Rate Liberalisation and 4) Securities Markets and Non-
Bank Financial Institutions;
EU (i,t) – Either a complete set of EU integration dummies or a 4-step EU integration progress
variable constructed in the following way: each country gets one point upon signing the
Association or Stabilization Agreement, one point upon submitting EU membership application,
one point upon opening membership negotiations and one point upon EU accession. These
points are summed up so that the total score ranges from zero to four. The dummy for a signed
PCA agreement is also included as a separate variable.
Lib (i,t-1) – one period lagged synthetic measure of economic liberalization or first-stage reforms.
It is constructed as the simple average of three EBRD indicators: 1) Price Liberalisation, 2)
Foreign Trade and Exchange Rate Liberalisation and 3) Small Scale Privatisation;
Fis (i,t-1) – lagged fiscal budget balance as a measure of macroeconomic stability
25. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Inf (i, t-1) – lagged inflation rate as a measure of macroeconomic stability
Pol (i,t-1) – lagged synthetic measure of political liberty. The state of political liberty is calculated
using the simple average from two Freedom House indices of 1) political rights and 2) civil
liberties.
growth (i,t-1) – GDP growth rate lagged by one period
24
u(i,t)– an error term.
In the first column of Table 2 we report results of a simple OLS estimation with fixed effects
which is equivalent to a within group estimation. The coefficient next to lagged institutions is
fairly large which indicates a high degree of persistence in institutional reforms. In this
specification, the coefficient on lagged EU integration loses significance and is substantially
lower than in previous estimations. However, it is well known that a simple, within group
estimator is biased when a lagged dependent variable is included on the right-hand side of the
equation in a panel framework because of correlation between lagged dependent variable and
the error term (Bond, 2002).
Accordingly we use two alternative techniques in order to address this problem. The procedure
developed by Arellano and Bond (1991) estimates the equation in first-differences with the
dependent variable, lagged by two and more periods, used as an instrument, along with
exogenous variables and other instruments (here the distance form Brussels). There is an
important difference between results from the Arellano and Bond (1991) procedure and simple
within group estimation of our equation. Most importantly, the coefficient on the EU integration
process is becoming significant. While the size of the coefficient is lower than in previous
estimation, the size of the implied long-term coefficient is close to 0.15, which is not very
different from our previous estimates. The level of persistence is lower than under fixed effects,
while both liberalization and fiscal position gain statistical significance with expected sign. As it
was argued by many authors including De Melo et al (2001) and Di Tomasso et al (2007), early
liberalization creates the demand for second stage, more institution-oriented reforms. A better
fiscal position provides opportunity for financing the deep institutional changes, including the
need to compensate the reform losers.
The results of alternative one-step technique introduced by Arellano and Bover (1995) involves
the use of orthogonal deviation, which proves superior when the time dependent variable is
persistent and, therefore, lagged dependant variables are weak instruments for the first
differences (Bond 2002). The change of the method matters little for the results, although EU
26. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
integration seems to be getting more significant at the expense of political freedom variables
(results presented in column 3).
In the first three columns, we show results for the specification that uses the synthetic measure
of EU integration, which poses a number of problems as discussed above. Therefore, in the
specifications shown in columns 4 through 6, we replace this problematic variable with the set of
EU related dummies, so that we can measure the impact of each accession step on reforms.
This change seems to matter little for most of the obtained coefficients, which suggests that the
error due to variable misspecification was fairly small. However, thanks to the inclusion of a full
set of dummies, we gain some insights about the relative importance of different stages of the
integration process for institutional reforms. Our results suggest that later stages of EU
integration, such as opening negotiations and actual membership, tend to be associated with
higher levels of structural reforms, but surprisingly earlier stages of integration do not bring such
benefits. The signature of the PCA agreement seems to have no effect on reforms.
Table 2. Determinants of institutional reforms in the dynamic panel specification
25
OLS
fixed
effects
(within
group)
GMM
Arellan
o-
Bond
GMM
Arellan
o-
Bover
OLS
fixed
effects
(within
group)
GMM
Arellan
o-
Bond
GMM
Arellan
o-
Bover
1 2 3 4 5 6
Lagged second-stage
institutional reform 0.81 0.59 0.59 0.80 0.60 0.61
24.70 8.61 12.59 22.05 8.53 12.81
Lagged liberalization 0.01 0.08 0.08 0.01 0.08 0.10
0.46 1.58 2.69 0.66 1.57 2.97
0.00 0.00 0.00
Lagged inflation 0.00 0.00 0.00 0.00 0.00 0.00
3.17 2.57 3.68 3.09 2.38 2.10
Lagged fiscal balance 0.00 0.01 0.00 0.00 0.01 0.00
1.40 2.40 2.00 1.47 2.23 1.64
Lagged political
liberty 0.05 0.06 0.03 0.05 0.06 0.03
4.49 3.17 1.44 3.83 3.10 1.43
Lagged synthetic
integration indicator 0.02 0.06 0.07
27. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
26
OLS
fixed
effects
(within
group)
GMM
Arellan
o-
Bond
GMM
Arellan
o-
Bover
OLS
fixed
effects
(within
group)
GMM
Arellan
o-
Bond
GMM
Arellan
o-
Bover
1 2 3 4 5 6
1.28 2.94 3.32
Dummy –
signed association
agreement 0.10 0.04 0.01
2.20 0.49 0.18
Lagged dummy –
membership
application filed -0.09 -0.01 0.01
-2.27 -0.16 0.20
Lagged dummy –
negotiations started 0.05 0.12 0.12
2.13 3.23 3.64
Lagged dummy –
EU membership 0.05 0.08 0.10
2.39 2.96 3.71
Lagged dummy-signed
PCA agreement 0.00 0.00 -0.07
-0.14 0.01 -0.71
Observations 355 329 329. 355 329 329
R-squared 0.95 0.95
Adjusted R-squared 0.95 0.95
S.E. of regression 0.14 0.17 0.12 0.14 0.17 0.12
Sum squared resid 6.56 8.98 4.86 6.38 9.04 4.76
Durbin-Watson stat 1.79 1.88
Mean dependent var 2.24 0.08 -0.23 2.24 0.08 -0.23
S.D. dependent var 0.63
0.1439
7 0.27 0.63 0.14 0.27
F-statistic 1183.7 722.3
Prob(F-statistic) 0.00 0.00
J-statistic 130.92 113.92 121.84 107.01
t-statistics reported in italics, Source: own estimation, variables and data as described above
28. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
4. Joint model of integration, reforms and growth
Taking stock, our estimates of the impact of the EU accession on institutional reforms prove
quite robust and confirm our priors. The impact of accession on reforms is strong and statistically
significant across all specifications. It remains significant when we include a number of control
variables and when we address the problem of endogeneity using instrumental variable and
panel data techniques. We now complement these results with the analysis that directly links
European integration, reforms and growth through the system of equations. The simultaneous
equation approach has the advantage of explicitly addressing the issues of the multi-direction
linkages among these three processes. Therefore, it can tell us something about the potential
virtuous cycle between growth, reform and integration and helps us to avoid the bias in
coefficients from the single-equation estimation due to feedback effects. We estimate the system
in which the first equation explains the institutional reforms, the second equation sheds some
light on factors conditioning the progress of integration with the EU, and the third one describes
the growth performance. Because we suspect that the CIS countries were, in fact, excluded ex
ante from the EU integration process aimed at the full membership, we introduce to the second
equation interactive variables that differentiate the size of the impact on integration between
these two broad groups of countries. It should be noted that in this specification, we cannot
substitute the problematic 4-step EU integration variable with a full set of dummies; therefore,
results should be treated with caution. Specifically, the system of equations takes the following
form:
Inst (i,t) = β0 + β1 EU (i,t-1) + β2 growth (i,t-1) + β3 IniCond (i) Time(t) + β4 IniCond (i) Time(t)^2
+ β5Time(t) + β6 Time(t)^2 + u(i,t)
EU (i,t) = γ0 + γ1 Inst (i,t-1) + γ2 growth (i,t-1) + γ3 IniCond (i) Time(t) + γ4 IniCond (i) Time(t)^2
+ γ5Time(t) + γ6 Time(t)^2 + γ7 Inst (i,t-1)DCIS(i) + γ8 growth (i,t-1) DCIS(i) + v(i,t)
growth (i,t) = δ0 + δ1 EU (i,t-1) + δ2 Inst (i,t-1) + δ3 Fis (i,t-1)+ δ4 Rec (i,t-1) + δ5 IniCond (i)
Time(t) + δ6 IniCond (i) Time(t)^2 + δ7Time(t) + δ8 Time(t)^2 + z(i,t) δ
where i and t are country and time period subscripts, respectively, and variables are:
EU (i,t) – 4-step EU integration progress variable constructed in the following way: each country
gets one point upon signing the Association or Stabilization Agreement, one point upon
submitting EU membership application, one point upon opening membership negotiations and
27
29. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
one point upon EU accession. These points are summed up so that the total score ranges from
zero to four.
Inst (i,t) - synthetic measure of institutional reform. It is constructed in the basic specification as
the simple average of all eight EBRD indicators: 1) Governance and Enterprise Restructuring, 2)
Competition Policy, 3) Banking Reform and Interest Rate Liberalisation and 4) Securities
Markets and Non-Bank Financial Institutions, 5) Large scale privatization, 6) Price Liberalisation,
7) Foreign Trade and Exchange Rate Liberalisation and 8) Small Scale Privatisation. It is
substituted by other synthetic indicators consisting of sub-sample of these 8 basic EBRD
indicators when results shown in Table 4 are being derived.
28
Growth (i,t) - GDP growth rate
Fis (i,t-1) – lagged fiscal budget balance as a measure of macroeconomic stability
IniCond (i) – synthetic measure of initial conditions calculated as the first principal component
analysis based on the sample of initial conditions indicators as presented by Godoy and Stiglitz
(2006). These components include: years spent under central planning, defence spending as
share of GDP, degree of industrial distortion, trade distortion and black market premium.
Rec (i, t) – current level of GDP as a share of its 1989 level
DCIS(i) – dummy variable denoting CIS countries
Time(t) – time trend
u(i,t), v(i,t), z(i,t), – error terms.
We use Three Stage Lease Square (3SLS) procedure to estimate this system. 3SLS is superior
to TSLS, which does not take into account the covariances between residuals, and therefore it is
not fully efficient. On the contrary, 3SLS is a system method that estimates all of the coefficients
of the model, then forms weights and re-estimates the model using the estimated weighting
matrix. The list of control variables in both equations includes the initial conditions and non-linear
time trends, also interacted in order to capture the possible non-linearities and changes through
time. The lagged level of GDP compared to its 1989 value is included to capture a possible
effect of the size of transition decline on the size of growth recovery. The list of instruments
includes all exogenous variables.
30. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Table 3. Determinants of reforms, integration and growth (Three-Stage-Least-Squares)
Dependent variable
Reform
29
Integration
Growth
Constant 1.36 *** 1.03
-
31.67 **
Trend 0.42 *** -0.16 7.49 *
Trend Sq. -0.02 *** -0.01 -0.42 *
Trend*Initial Conditions -0.07 *** -0.12 -1.54
Trend Sq.*Initial Conditions 0.00 *** 0.01 * 0.12
Lagged structural reform 0.87 *** 6.26 ***
Lagged structural reform interacted with CIS
dummy -0.61 *
Lagged EU integration 0.30 *** -1.15
Lagged GDP growth 0.01 *** 0.35 **
Lagged GDP growth interacted with CIS dummy -0.55 ***
Fiscal balance -1.27
Output recovery -0.11 *
R-squared 0.71 0.76 0.32
Sample: 1991-2006
Observations: 400 (26x16)
*, **, *** denotes significance at 10%,5% and 1% level, respectively
Our results presented in Table 3 suggest strong positive impact of European integration on
structural reforms, notwithstanding strong and significant feedback effect from reforms to
integration in the case of non-CIS countries. Growth is strongly and statistically linked to
structural reforms, but not to European integration directly. Growth can also positively feed
reforms as well as integration process. These results confirm the virtuous circle hypothesis. In
other words, growth, integration and reforms can become mutually reinforcing processes. Such
a reinforcing process fails to operate for CIS countries, as reforms and growth do not induce
integration as indicated by the interactive term between reform progress and CIS membership in
the equation explaining integration. In fact, it is not possible to reject the hypothesis that the
impact of reforms on EU integration is not statistically different from zero for this group of
countries. Obviously these results are not surprising as none of the CIS counties has been on a
path towards EU membership7. The evidence therefore suggests that, indeed, exclusion from
the accession process can have heavy costs in these countries in terms of reform
underperformance and therefore growth. There are two mechanisms at work. First, lack of
7 The fact that the CIS have not been offered any path toward membership does not mean that that broadly defined
economic integration with the EU could not have brought some additional reforms and growth bonuses.
31. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
integration is harmful to reforms directly as evidenced by results from the first equation. Second,
there is a potential indirect effect: countries might reform less as it does not give them any
integration bonus (as suggested by the second equation) what causes additional loss in the
progress of structural reforms (as evidenced by the first equation).
5. Potential growth bonus: results of simulations
We showed in the previous sections, that the overall robustness of the positive link between
growth performance and reforms, as well as between reforms and integration is high.
Nevertheless, quantitative results vary greatly dependent on exact specifications. This makes
any point estimate of the size of potential growth bonuses in neighbouring countries problematic.
However, it still does not preclude taking these results as the indication of the ballpark range of
possible growth impact of deepened neighbourhood. This is exactly what we do below.
In order to derive the range of growth bonus estimates, we build on results of published research
and complement them with results of our own econometric investigation. Specifically, we take as
a starting point five recently published papers, described in some details in the second section of
this paper. These papers used the most popular dataset of EBRD Transition Indicators to derive
the results about the impact of reforms on growth. We construct exactly the same reform
measures. As none of original papers, tried to link reforms to European integration, we estimate
the link between each measure and the European integration. This is done in the analytical
framework of a system of simultaneous equations described in the previous section. This
framework also re-estimates the size of the impact of reform measure on growth. We use these
new estimates alongside the original estimates to provide additional test of robustness.
Results for the average of the group of “Eastern Neighbours” (as defined earlier: Armenia,
Azerbaijan, Belarus, Georgia, Moldova, Russia, Ukraine) are presented in Table 4. Each row in
this table corresponds to the different measure of reform used in the respective paper. Estimates
of growth bonuses presented in the first two columns are based on the simplest assumption that
deepened neighbourhood can lead to the halving of the institutional gap between a given
neighbourhood country and the average of the Central European countries. Using estimated
coefficients about the impact of corresponding reform measure on growth, we derive a range of
estimates about potential growth bonus that corresponds to such institutional harmonization.
Results in the first column are based on the coefficient derived from the original papers. Second
30
32. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
column presents simulations based on the re-estimated impact in our system of simultaneous
equations.
Third column presents results derived in a slightly more involved way using our econometric
result about the impact of integration on reforms. Unfortunately, the estimated coefficient can
show only the impact of different stages of accession process and not that of deepened
neighbourhood cooperation. For this reason, also in this approach we are forced to make an
arbitrary assumption. Namely, we assume that fully blown neighbourhood cooperation can yield
reform cum growth impact equivalent to estimated impact of two steps in the accession process
(or half the size of the actual full accession impact).
The derived range of possible values between 1 and 3.8 with the median at 1.8 percentage
points seems to be intuitively plausible in evaluating the aggregate gains for the neighbouring
region. Not surprisingly, among analyzed indicators, the least growth bonus is expected through
basic liberalization reforms, where the gap between Eastern neighbours and Central Europeans
is the lowest and the uniqueness of European factor in inducing reforms is the smallest
(Dabrowski and Radziwill, 2006). The importance of these results should not be overlooked as
consistently with the specification of underlying econometric studies, additional percentage point
of growth due to better institutions is predicted to persist. In other words, eliminating half of the
institutional gap and sustaining the institutional variable on the same level results in permanent
increase in the growth rate.
Table 4. Potential growth bonus from deepened neighbourhood cooperation
Growth bonus from
eliminating half of the
31
institutional gap
with estimate of reform-output
EBRD Transition
Indicators*
(used to evaluate the
institutional gap)
Source
from original
paper
re-estimated
Growth bonus from
deepened
neighbourhood
cooperation with the
EU
Weighted average
of all 8 indicators
Merlevede
B.(2003)
1.43 1.71 3.01
Simple average
of all 8 indicators
Falcetti E.,
Lysenko T.,
Sanfey P. (2006)
3.47 2.67 3.76
Simple average
of indicators 1-6
Eschenbach F.,
Hoekman B
(2006)
3.42 1.94 3.02
Simple average
of indicators 1-5
Koivu T., Sutela
P.(2005)
1.77 1.51 2.66
Simple average
of indicators 1-3
Mickiewicz (2005)
1.10 1.02 2.00
33. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Source: Own estimation based on following EBRD indicators: 1) price liberalization, 2) trade and foreign exchange
liberalization, 3) small-scale privatization, 4) large-scale privatization, 5) competition policy, 6) governance and
enterprise reform, 7) banking reform and interest-rate liberalization, 8) non-bank financial institutions. For the list of
countries see footnote to Figure 1.
To conclude this investigation, Table 5 and Figure 4 present average GDP growth in years
2000-2005 for seven Eastern Neighbouring countries together with the average estimated
growth bonus resulting from institutional deepening. Lowest and highest estimates are also
marked. It is clearly seen that the biggest beneficiary of development of institutions would be
Belarus (average growth bonus of 4.71 p.p.) whose growth bonus surpasses results for other
countries. This results from a considerable institutional gap persisting in this country in
comparison to other Central European Countries. In case of other ENP countries the possible
long-term growth bonus effects are also substantial. Among them, Armenia and Georgia
(average growth bonuses of 1.14 p.p. and 1.19 p.p. respectively) seem to potentially gain the
least from the deepened neighbourhood cooperation. This is not surprising, as these countries
were the most successful in building the strong consensus for reforms without the direct
European anchoring impact. This is evidenced by the highest EBRD transition indicators scores
across Eastern Neighbourhood8.
Table 5. Range of potential country growth bonus (% growth in per capita terms)
32
Armenia
Azerbaij
an
Belarus Georgia Moldova Russia Ukraine ENP
Actual average
growth
2000-2005
10.65 10.02 6.81 5.62 5.70 6.56 6.61 7.42
Average bonus 1.14 2.34 4.71 1.19 1.57 1.62 1.62 2.03
Min bonus 0.13 0.79 3.68 0.13 0.57 1.02 0.79 1.03
Max. bonus 3.03 4.25 5.71 3.18 2.98 2.06 2.57 3.76
Source: EBRD and own estimations.
8 These countries are also ranked as best performers according to the 2008 World Bank Doing Business Report.
34. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
Figure 4. Range of potential country growth bonus for neighbouring countries
33
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Armenia Azerbaijan Belarus Georgia Moldova Russia Ukraine ENP
Growth bonus
GDP growth
Growth bonus min.
Growth bonus max.
Source: definitions of variables come from Falcetti et al. (2006), Eschenbach and Hoekman (2006), Mickiewicz
(2005), Merlevede (2003), Koivu and Sutela (2006). To compute the indicators we used EBRD dataset for years
1989-2007. The institutional gap was measured in 2007. Growth bonus equals the average of possible gains in the
growth rate computed on the basis of the six indicators. GDP growth is an average growth computed for every country
for years 2000-2005. Growth bonus max./min equals the maximum/minimum possible gain in growth on the basis of
the analysed indicators.
6. Concluding remarks
We believe that our results are useful in providing the ballpark figure about the range of potential
growth bonus from deepening of the neighbourhood cooperation, and most notably in confirming
its overall positive impact on growth in neighbouring countries. Secondly, results also suggest
that deepened neighbourhood can be particularly important in terms of growth for countries that
lagged in reform process so far.
In interpreting these fundamental results, it needs to be stressed that there are several
conceptual, economic and econometric considerations that reduce the robustness of specific
results, and preclude the use of any point estimate in the policy debate. Conceptually, it is very
difficult to evaluate now the degree of integration and hence of institutional harmonisation that
would be achieved under the ENP compared to the EU accession process. Any arbitrary
assumption has a crucial role in driving the value of growth bonus estimate. Secondly, economic
growth is a complex process and reforms are only one of the elements that influence it. Possible
35. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
short-term bottlenecks might reduce the chances of accelerated growth. The long-term growth
potential of economies is unknown, and neither is the equilibrium path of growth. It might happen
that long-run growth potential can be in several instances already used due to the post-recession
output recovery or oil windfall, exceptionally good access to external financing or
simply a pick in the business cycle. There is also a strong element of interactions among
different kinds of reforms and the underlying fundaments of economy or initial conditions. Some
reforms might be more important than others at the given level of development. Some can be
implemented less successfully due to organized vested interest groups etc. These
considerations are only partially captured by different specifications presented and referred to in
this paper. Last but not least, quantitative results tend to be very sensitive to details of
econometric specification. Despite various methodologies discussed or presented in this paper,
several econometric challenges, notably possible measurement errors and endogeneity biases,
remain the challenge, which may reduce the robustness of specific results. These challenges
make further research in this area both necessary and promising in terms of policy
recommendations.
34
36. CASE Network Studies & Analyses No.386 - EU’s Eastern Neighbours: Institutional Harmonisa…
35
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