Productivity Growth of Transition Economies: An Assessment

Abstract

Accession to the euro area is a long term process that is still under way for most transition economies, and different paths to macroeconomic stabilization were adopted by local authorities. This study is based on data for three groups of countries: EEC Eastern European countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Slovak Republic, Slovenia, Ukraine), BC Baltic countries (Estonia, Latvia, Lithuania), CEC Core European countries (France, Germany, Italy). We acknowledge that, well beyond plain economic convergence, the integration process is affected by peculiar political pressures; nonetheless our aim is to determine whether a group of countries is better suited to enter the euro area (more EMU-ready), or if transition economies does not share a common growth pattern with core European countries. Although labour productivity points to a substantial convergence of transition economies, kernel estimation methods shows a twin peak (bimodal) distribution, providing evidence against the convergence hypothesis. We use non-parametric, linear programming technique DEA to compare efficiency of decision-making units (DMUs). Since evidence is quite puzzling, decomposition of Malmquist productivity index is needed. Lastly, a tentative explanation of productivity growth through governance indicators is proposed.