Economic Growth and Development in Central and Eastern Europe after the Transformation

Abstract

This paper examines the direct sources of economic growth and development in 10 post-socialist Central and East Euro-pean countries in the period from 1995 to 2012. We perform an empirical analysis relying on the methods of growth accounting and development accounting. The results of the growth accounting analysis demonstrate that the most important source of economic growth is the accumulation of physical capital, while the growth of labour productivity and that of multifactor productivity often have marginal effects only. These results are in line with those of development accounting, suggesting that the sluggish growth of the 10 countries compared to Germany in terms of GDP/hours worked can be attributed primarily to the low capital intensity of Central and East European economies, which offered considerable potential for the rapid accumulation of physical capital.