Gallina Andronova Vincelette

Drivers of convergence in eleven eastern European countries

This paper investigates the drivers of growth and prosperity in a group of eleven European countries -- Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovenia, and Slovakia (the EU11). Since the EU11 began the transformation process, this group of emerging countries has made impressive strides as developing market economies and is anchoring development in European Union institutions. There are reasons to believe that the convergence of EU11 income per capita to Western European levels will continue, but will proceed more slowly. The paper concludes that trade and financial integration have sped along at a spectacular pace in the EU11 in the recent past, although trade in modern services and the integration of government bond and equity markets are somewhat behind. As in the rest of Europe, demographic developments will pose huge challenges for the sustainability of public finance in the EU11 economies. In the next several decades, the EU11 labor force is expected to contract more than labor forces in the rest of the European Union, making it even more urgent that countries in the region reform pension systems, change migration policy, and find incentives to attract talent to the region. Closing the gap with the rest of the European Union in educational attainment levels and improving education quality might significantly soften the constraints imposed by the demographic threats and produce sizable returns in terms of additional income convergence.

China : global crisis avoided, robust economic growth sustained

This paper explores how the ongoing crisis, the policy responses to it, and the post-crisis global economy will impact Chinas medium-term prospects for growth, poverty reduction, and development. The paper reviews Chinas pre-crisis growth experience, including its relationship to global economic developments. It discusses the pace, composition, sources, and financing of growth during 1995-2007, and the impact of key external and domestic influences. The paper also analyzes the immediate impact of the global crisis on Chinas economic performance in 2009 and its likely impact in the short run. It then discusses the governments policy response, with a particular focus on the fiscal and monetary stimulus measures. Finally, the paper explores Chinas medium-term growth prospects in light of the crisis and the key policies for moving to a robust and sustainable growth path post-crisis.

Institutional barriers and job creation in Central and Eastern Europe

Using information from the Amadeus dataset and the Business Environment and Enterprise Performance Survey, we provide an empirical investigation of the industry and firm-specific determinants of the intensive margin (i.e., within existing firms) job creation process in eleven Central and Eastern European economies during the period 2002–2009. Our results indicate that during the years prior to the global financial crisis, traditional industries were crucial for the net intensive margin creation of jobs in the region but, by contrast, services firms were less vulnerable to the economic downturn. At the firm level, small and young already existing firms and subsidiaries of multinational corporate groups tended to register the highest employment growth rates. The empirical results also indicate that more productive surviving firms tended to be less vulnerable to the economic downturns in terms of employment change. The perceived quality of the business climate by enterprises of the region is robustly correlated with intensive margin employment growth both before and during the recent global financial crisis. Interestingly, the best performing surviving firms are estimated to be most negatively affected by a poor business environment. Institutional barriers thus appear as an important factor hampering firm growth in Central and Eastern Europe. These findings hold for the group of high-growth surviving firms (gazelles) that disproportionately accounted for the creation of new jobs in these economies.JEL classificationL16; L21; L25; L51; L53

Untangling the maze of European Union funds to Bulgaria

The paper presents a fiscal estimate of Bulgarias perspective European Union (EU) membership. The projected EU funds have two distinct effects: first, there is the overall effect on the balance of payments of the country; and second, there is the pure effect on the national budget. The paper concludes that Bulgaria is likely to benefit from large net inflows of resources of an average of 3.7 percent of gross domestic product (GDP) in 2007-09. In contrast, its fiscal position is expected to deteriorate by 1.6 percent of GDP on average in 2007-09 if no expenditure restructuring of the fiscal framework is carried out. The expected deterioration of the public finances related to EU accession would be due to co-financing requirements, national contributions to the EU budget, and possible full pre-financing of the EU direct payments to Bulgarian farmers in the first year of accession. However, the above expenditures will be partly offset by the budgetary compensation allocated out of the EU budget, savings from agricultural subsidies, and shifting of certain public expenditures to Cohesion Fund-supported projects.

When Do Sudden Stops Really Hurt

This paper analyzes the drivers and consequences of sudden stops of capital flows. It focuses on the impact of external vulnerability on the depth and length of sudden stop crises. The authors analyze 43 developing and developed countries between 1993 and 2006. They find evidence that external vulnerability not only significantly impacts the probability of a sudden stop crisis, but also prolongs the time it takes for growth to revert to its long-term trend once a sudden stop occurs. Interestingly, external vulnerability does not significantly impact the size of the instantaneous output effect in case of a sudden stop but prompts a cumulative output effect through significantly diminishing the speed of adjustment of output to its trend. This finding implies that countries financing a large part of their absorption externally do not suffer more ferocious output losses in a sudden stop crisis, but take longer to adapt afterward and are hence expected to suffer more protracted crises periods. Compared with previous literature, this paper makes three contributions: (i) it extends the country and time coverage relative to datasets that have previously been used to analyze related topics; (ii) it specifically accounts for time-series autocorrelation; and (iii) it provides an analysis of the adjustment path of economic growth after a sudden stop.

Brittle Recovery, South East Europe Regular Economic Report No. 6

The report reviews recent economic developments in Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia), focusing on fiscal, external, financial sector, and labor market issues -- with a spotlight on youth unemployment -- and a short-term outlook for Western Balkans. It also discusses the challenge of income convergence with the EU.

When Do the Sudden Stops Really Hurt

This paper analyzes the drivers and consequences of sudden stops of capital flows. It focuses on the impact of external vulnerability on the depth and length of sudden stop crises. The authors analyze 43 developing and developed countries between 1993 and 2006. They find evidence that external vulnerability not only significantly impacts the probability of a sudden stop crisis, but also prolongs the time it takes for growth to revert to its long-term trend once a sudden stop occurs. Interestingly, external vulnerability does not significantly impact the size of the instantaneous output effect in case of a sudden stop but prompts a cumulative output effect through significantly diminishing the speed of adjustment of output to its trend. This finding implies that countries financing a large part of their absorption externally do not suffer more ferocious output losses in a sudden stop crisis, but take longer to adapt afterward and are hence expected to suffer more protracted crises periods. Compared with previous literature, this paper makes three contributions: (i) it extends the country and time coverage relative to datasets that have previously been used to analyze related topics; (ii) it specifically accounts for time-series autocorrelation; and (iii) it provides an analysis of the adjustment path of economic growth after a sudden stop