Growth and convergence in Eastern Partnership and Central Asian countries since the dissolution of the USSR—embarking on different development paths?

Background Since the dissolution of the USSR, the former Soviet countries not included in the enlargement of the European Union (EU) have experienced divergent development. While the so‐called Eastern Partnership (EaP) countries established closer ties with the EU, the Central Asian (CA) states mostly gravitated towards Russia and China. Thus, despite belonging to a similar economic and political system, the two groups of countries pursued transition to a market‐oriented economy and fostering development with varying results, creating a neat contrast to facilitate the study of patterns of growth and disparity. Purpose Based on an analysis covering more than two decades, the article explores the growth paths of the EaP and CA countries. Given their bumpy economic performances, the article aims, first, to show how these affected economic disparities among them. Second, it aims to identify the factors which most influenced different development trajectories. Approach and methods Through analysis of panel data, the article seeks to explain long‐term economic growth (1992–2015) in terms of endowments of production factors, macroeconomic stabilization and transition reforms, external conditions and institutional development. Sources of growth are identified to reveal how they affected income per capita and shaped convergence in the two groups of countries. Findings The EaP and CA countries show different growth patterns since the end of communism. While the EaP economies shrank more during the 1990s compared to the CA group, they bounced back faster during the 2000s. The EaP economies, being more closely connected to the EU, were more affected by the Great Recession of 2007–2009 than those of the CA. Overall, economic disparities between these sets of countries have slightly increased. Physical capital, foreign direct investment, natural resources, openness to trade and the transition reforms significantly explain economic growth, with stronger effects in the EaP compared to CA countries, which suggests the EU’s neighbourhood instruments have been effective in promoting growth. Policy implications Our findings suggest that stepping up reforms, preserving macroeconomic stability, enhancing openness to trade and accumulating factors of production spurred growth in both EaP and CA countries. Pursuing closer ties with the EU economies fostered growth by strengthening investment, foreign trade, structural and market reforms, and by better use of natural resources. Given the large variations seen between countries in both groups, more detailed country diagnoses are needed to tailor interventions according to the specifics of each country.