Convergence stories of post-socialist Central- Eastern European countries

Baksa, Dániel and Kónya, István (2021) Convergence stories of post-socialist Central- Eastern European countries. The Manchester School (89). pp. 239-258. DOI

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This paper views the growth and convergence process of five Central- Eastern European economies between 1996 and 2019— the Czech Republic, Hungary, Poland, Slovenia and Slovakia— through the lens of an open economy, stochastic neoclassical growth model with simple financial frictions. Our main question is whether shocks to the growth rate of productivity (‘trend’) or shocks to the external interest pre-mium are more important to understand the volatility of GDP growth and its components. We find that while GDP growth fluctuations can be traced back to productivity shocks, the composition of GDP— and consumption in particular— was driven particularly by premium shocks. Investment- specific and labor market shocks are also important. Our panel estima-tion allows us to separate global and local components for the productivity- trend and interest premium shocks. Results indi-cate that the global trend component is well approximated by the growth rate of the advanced European Union economies, and we also find tentative evidence that recent investment be-havior is driven to a large extent by European Union funds.

Item Type:Article
Uncontrolled Keywords:Bayesian estimation, interest premium, small open economy, stochastic growth, technology shocks
JEL classification:E13 - General Aggregative Models: Neoclassical
O41 - One, Two, and Multisector Growth Models
O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Subjects:Economic development
Funders:Ministry of Innovation and Technology, Hungarian Scientific Research Fund
Projects:TKP2020-IKA-02, K 116033
ID Code:6989
Deposited By: Veronika Vitéz
Deposited On:27 Oct 2021 09:16
Last Modified:27 Oct 2021 09:17

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