Comparing the Growth Performance of the New EU Countries

Abstract

We measure the contribution of the main factors explaining real domestic income growth in eight new EU countries. Our concept of real domestic income differs from real gross domestic product (GDP) by treating changes in the prices of goods traded internationally as a real effect to income growth. Our estimates show that three countries experience a strong increase in their terms of trade, indicating that real GDP growth underestimates the increase in real domestic income of these countries, and that real GDP growth should be used only to roughly approximate changes in a country's real income.