Catching up or getting stuck: convergence in Eastern European economies

István Kónya

Eurasian Economic Review, 2023, vol. 13, issue 2, No 3, 237-258

Abstract: Abstract The paper studies the convergence and growth behavior of 11 Central and Eastern European members states of the European Union between 2000–2019, using a modified development accounting approach based on the neoclassical growth model. The main goal of the exercise is to decompose the still existing development gap relative to Western Europe (Austria) into three components: convergence, productivity, and long-run factors. The latter may include general institutional features such as population growth, or capital market imperfections measured by the capital wedge. The capital wedge is identified by leveraging the neoclassical growth model’s ability to explain the observed behavior of the capital-output ratio. The main conclusions are that for most countries, lower productivity and capital distortions are both important to understand underdevelopment. Economic policy, therefore, should primarily target productivity growth and a free and efficient capital market.

Keywords: Convergence; Development accounting; Eastern Europe; Neoclassical growth model; Capital wedge (search for similar items in EconPapers)
JEL-codes: E13 O41 O47 O52 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40822-023-00230-2

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