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What is Happening to Growth in Europe?

Author

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  • Rumen Dobrinsky

    () (The Vienna Institute for International Economic Studies, wiiw)

Abstract

Summary The paper undertakes an empirical analytical assessment of some of the determinants of economic growth in the EU during the past decade, with a specific focus on the Central and Eastern European (CEE) members of the EU. The methodology is based on a combination of different statistical methods and techniques including descriptive statistics and stylised facts as well as some widely used empirical models of growth, including the testing of convergence hypotheses and running panel growth regressions. During the decade prior to the global economic and financial crisis, the growth model in the EU was disproportionately skewed towards the attraction and mobilisation of additional resources as compared to the reliance on structural supply-side factors. In particular, EU growth on average was extremely finance-dependent and debt-intensive. The ensuing debt crisis in the euro area rejected this growth model on the grounds of its unsustainability. The current debt overhang implies that countries (both governments and businesses) will have to learn to live with less resources (in the first place financial) at their disposal. Thus one of the key factors for invigorating future growth could be raising the efficiency of resource utilisation, including the utilisation of public funds. Growth in the CEE countries was also finance-dependent and debt-intensive but, on average, not to the extent observed in the older EU Member States. CEE economies relied on improvements in structural supply-side factors such as productivity, innovation and competitiveness to a larger degree than was the case in the older EU members. Thus CEE countries may have a larger degree of policy freedom to deal with the implications of the crisis. The paper also addresses some policy issues related to the possible invigoration of economic growth in the EU and, in particular, in CEE. It suggests that one of the areas of policy reforms that could invigorate growth is that targeting improvements in the efficiency of financial intermediation and more efficient allocation of financial resources. The paper also discusses some supply-side structural measures that appear to be especially pertinent to the CEE economies.

Suggested Citation

  • Rumen Dobrinsky, 2013. "What is Happening to Growth in Europe?," wiiw Research Reports 385, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:rpaper:rr:385
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    References listed on IDEAS

    as
    1. Gabor Hunya, 2002. "Recent Impacts of Foreign Direct Investment on Growth and Restructuring in Central European Transition Countries," wiiw Research Reports 284, The Vienna Institute for International Economic Studies, wiiw.
    2. Fagerberg, Jan, 2000. "Technological progress, structural change and productivity growth: a comparative study," Structural Change and Economic Dynamics, Elsevier, vol. 11(4), pages 393-411, December.
    3. Joze P. Damijan & Mark Knell & Boris Majcen & Matija Rojec, 2003. "Technology Transfer through FDI in Top-10 Transition Countries: How Important are Direct Effects, Horizontal and Vertical Spillovers?," William Davidson Institute Working Papers Series 549, William Davidson Institute at the University of Michigan.
    4. Peter Havlik, 2003. "Restructuring of manufacturing industry in the central and east european countries," Prague Economic Papers, University of Economics, Prague.
    5. Timmer, Marcel P. & Szirmai, Adam, 2000. "Productivity growth in Asian manufacturing: the structural bonus hypothesis examined," Structural Change and Economic Dynamics, Elsevier, vol. 11(4), pages 371-392, December.
    6. Tatyana P. Soubbotina & Katherine A. Sheram, 2000. "Beyond Economic Growth : Meeting the Challenges of Global Development," World Bank Publications, The World Bank, number 15789.
    7. Hermine Vidovic, 2002. "The Services Sectors in Central and Eastern Europe," wiiw Research Reports 289, The Vienna Institute for International Economic Studies, wiiw.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    economic growth; growth determinants; real convergence; global economic and financial crisis; European Union; Central and Eastern Europe;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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