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European integration, productivity growth and real convergence: Evidence from the new member states

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  • Kutan, Ali M.
  • Yigit, Taner M.

Abstract

We estimate the determinants of labor productivity growth in 8 new European Union (EU) member states that joined the Union in 2004. Our focus is on the impact of globalization and EU integration efforts on labor productivity growth. Previous studies test the impact of trade using either exports or trade openness. We also test the impact of imports separately on labor productivity growth. Using panel data for 1995-2006 period, we find that globalization has mixed effects. FDI and exports improve productivity, but imports hurt it. Regarding domestic variables, we find that human capital is the most important source of labor productivity growth in the new member states. There is also considerable adjustment of labor productivity towards EU15 levels, indicating significant "catching up" and hence real convergence. Policy implications of the findings are also discussed.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 33 (2009)
Issue (Month): 2 (June)
Pages: 127-137

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Handle: RePEc:eee:ecosys:v:33:y:2009:i:2:p:127-137

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Keywords: Productivity Convergence European Union Transition economies;

References

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  1. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  2. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, American Economic Association, vol. 94(3), pages 605-627, June.
  3. De Loecker, Jan, 2007. "Do exports generate higher productivity? Evidence from Slovenia," Journal of International Economics, Elsevier, Elsevier, vol. 73(1), pages 69-98, September.
  4. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 605-618, June.
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  7. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3381, C.E.P.R. Discussion Papers.
  8. Fernandes, Ana M., 2003. "Trade policy, trade volumes, and plant-level productivity in Colombian manufacturing industries," Policy Research Working Paper Series 3064, The World Bank.
  9. Ioan Voicu, 2004. "Are Foreign Subsidiaries Technologically Superior to Local Firms? : Evidence from Romania," Eastern European Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 42(4), pages 5-32, July.
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  11. M. Taner Yigit & Ali M. Kutan, 2004. "European Integration, Productivity Growth and Real Convergence," Departmental Working Papers, Bilkent University, Department of Economics 0402, Bilkent University, Department of Economics.
  12. Codrina Rada & Lance Taylor, 2006. "Developing and Transition Economies in the Late 20th Century: Diverging Growth Rates, Economic Structures, and Sources of Demand," Working Papers, United Nations, Department of Economics and Social Affairs 34, United Nations, Department of Economics and Social Affairs.
  13. Hiroyuki Kasahara & Joel Rodrigue, 2005. "Does the Use of Imported Intermediates Increase Productivity? Plant-Level Evidence," University of Western Ontario, Economic Policy Research Institute Working Papers 20057, University of Western Ontario, Economic Policy Research Institute.
  14. Bernard, Andrew B & Jones, Charles I, 1996. "Productivity across Industries and Countries: Time Series Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 135-46, February.
  15. Xu, Bin, 2000. "Multinational enterprises, technology diffusion, and host country productivity growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 477-493, August.
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Citations

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Cited by:
  1. Mihaela Simionescu, 2014. "Testing the Convergence Hypothesis in the European Union," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 2(1), pages 222-229, May.
  2. Jesus Crespo Cuaresma & Miroslava Havettova & Martin Labaj, 2012. "Income convergence prospects in Europe: Assessing the role of human capital dynamics," Department of Economics Working Papers wuwp143, Vienna University of Economics, Department of Economics.
  3. Kravtsova, Victoria & Radosevic, Slavo, 2012. "Are systems of innovation in Eastern Europe efficient?," Economic Systems, Elsevier, vol. 36(1), pages 109-126.

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