EU Accession and Macroeconomic Performance of the Transition Economies

Abstract

It has been nearly two decades since the Central and Eastern European countries (CEECs) joined the European Union in 2004. These former centrally planned countries should have now firmly settled down as members of the vast single bloc of market economies. We study the macroeconomic performance of eleven CEECs following the EU accession. The eleven transition economies have reduced CPI inflation rates from 35.6% to 1.9% during the period. Real GDP growth rates have slowed down slightly from 2.92% to 2.77%, but showed absolutely best performance compared to the Western European countries, the UK and the US. Furthermore, CPI inflation rates, unemployment rates, and current account balances all show a very strong convergence among the sample countries. OLS regression indicates positive significant effect of budget surplus and nominal effective exchange rates whereas negative effect of government debt and real effective exchange rates on real GDP growth rates. This implies continued dominance of government and the importance of trade in the macroeconomic performance of the eleven transition countries. In the non-linear STR (smooth transition regression) analysis, we get significant regression results for Poland and Bulgaria. Other countries do not show proper STR results, possibly due to small number of observations.