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Romania and the trade and the development approaches to CEE convergence with the EU, under the competitive pressures of integration

Andreea Vass
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Andreea Vass: Institute of National Economy, Romanian Academy of Sciences

No 151, IWE Working Papers from Institute for World Economics - Centre for Economic and Regional Studies- Hungarian Academy of Sciences

Abstract: The aim of this paper is to analyse the inadequate driving forces for Romanian convergence with the EU and provide further explanatory variables for the uneven convergence performance of EU newcomers in general. Convergence cannot be taken for granted. What turns out to provide a real explanatory dimension is analysis of the convergence speed of CEE countries as they advance towards EU integration. This can be done by comparing the trade approach with the development approach, in a context of endogenous and exogenous competitive structures and pressures. The author∗ believes that the catching-up process is fundamentally determined by growth competitiveness and business-environment competitiveness, as proxies respectively for the development and the trade approaches to convergence. A contrast is drawn between the convergence potential of CEE countries and the rather mechanistic measure of GDP per capita convergence. Some industries and categories of labour have converged rapidly towards the EU development standard, but others have not. On a macroeconomic level, the higher the endogenous competitive pressures derived from the business environment, the higher the speed of CEE countries’ GDP per capita convergence. Institutional quality, microeconomic reforms, national business environment, FDI, foreign trade and technology upgrading are all part of the story. Improvement in them is indispensable if post-communist countries are to catch up. The complex interactions between them when determining Romania’s convergence speed are unexplored economic frameworks, and the study sets out to reflect on them. The argument for this approach rests on the need to give due weight to the fact that a country’s wealth or standard of living is created at microeconomic level, and interactions between growth and trade performance (competitiveness) reveal in transition economies complex patterns that provide in-depth explanations for convergence-speed differences. Macroeconomic, political, legal and social reforms cannot entirely succeed unless such capabilities improve. The paper also makes several comments on the CEE 10 framework for the trade liberalization/economic growth/human development relationship, in the context of EU integration. Finally, the author puts forward a new composite indicator for convergence, to limit the uncertainty of classical convergence approaches and growth projections for CEE countries. This Growth Competitiveness Convergence indicator takes into account the neglected aspects of the convergence process already mentioned, and changes the overall picture of CEE convergence performance.

Keywords: Romania; Trade; development; CEE; convergence; EU (search for similar items in EconPapers)
Pages: 91 pages
Date: 2005-02
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