Convergence, productivity and debt: the case of Hungary

Daniel Baksa () and István Kónya
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Daniel Baksa: Institute for Capacity Development, International Monetary Fund and Central European University

No 1916, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: We study the role of productivity convergence and financial conditions in the recent growth experience of Hungary. We build a stochastic, small-open economy growth model with productivity convergence, capital accumulation and external borrowing. Using empirically identified processes for productivity and the external interest premium, we simulate the effects of two unexpected, permanent changes on Hungarian growth. The first change is the sharp productivity slowdown starting in 2006, and the second is the tightening of external financial conditions starting in 2009. Simulating our model, we show that the empirically identified productivity and interest premium processes - along with the two unexpected permanent changes and regular i.i.d. productivity and interest premium innovations – capture the main medium-run dynamics of the Hungarian economy both before and after the global financial crisis. Running counterfactuals, we also find that the observed slowdown in GDP per capita growth was mostly driven by productivity, while the tightening of external financing conditions is important to understand investment behavior and the net foreign asset position.

Keywords: economic growth; convergence; productivity; interest premium; Hungary (search for similar items in EconPapers)
JEL-codes: E13 E22 F43 O47 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2019-09
New Economics Papers: this item is included in nep-cfn, nep-dge, nep-eec, nep-fdg, nep-mac, nep-opm and nep-tra
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:has:discpr:1916

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