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Capital flows and growth dynamics in Central and Eastern Europe

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  • Karsten Staehr

Abstract

This paper assesses the importance of capital flows as measured by the current account balance for the growth dynamics of the EU countries from Central and Eastern Europe. Economic growth in these countries was on average relatively high before the global financial crisis but markedly lower after the crisis. Panel data econometrics using annual data for 1997–2015 points to the contemporaneous current account balance having a sizeable negative effect on annual GDP growth. Estimations using many control variables and instrumental variables suggest that the negative effect is mainly demand driven. Counterfactual simulations show that growth rates in all CEE countries would have been lower in the absence of capital flows, and this applies particularly to the countries with the most disadvantageous starting points.

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  • Karsten Staehr, 2017. "Capital flows and growth dynamics in Central and Eastern Europe," Bank of Estonia Working Papers wp2016-10, Bank of Estonia, revised 06 Feb 2017.
  • Handle: RePEc:eea:boewps:wp2016-10
    DOI: 10.23656/25045520/102016/0037
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    Cited by:

    1. Kersti Harkmann & Karsten Staehr, 2019. "Current account dynamics and exchange rate regimes in Central and Eastern Europe," Bank of Estonia Working Papers wp2018-08, Bank of Estonia, revised 23 Jan 2019.
    2. Loewald, Christopher & Wörgötter, Andreas, 2019. "Do monetary unions dream of structural reforms?," ECON WPS - Working Papers in Economic Theory and Policy 01/2019, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.
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    More about this item

    Keywords

    business cycles; output performance; capital flows; current account balance; transition economies;
    All these keywords.

    JEL classification:

    • P17 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Performance and Prospects
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P36 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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