Abstract
This paper carries out a growth accounting exercise for the 10 Central and Eastern European (CEE) countries that are part of the European Union over the period 1993-2008. We estimate the capital share (?) from a Cobb-Douglas production function in an intensive form, by employing panel data techniques. The Hausman and Chi-Square tests indicate that a Cross- Section Random Effects with Period Fixed Effects model best suits our data. Based on this model, we find a capital share between 0.45 and 0.83, higher than the usual 0.3-0.4 used in growth accounting literature. When we take into consideration the quality of labour force the estimated capital share slightly decreases, but still remains high, in a range between 0.39 and 0.79. Our growth accounting results reveal that, on average, capital per worker accumulation is the main engine of growth in CEE, followed by the contribution of total factor productivity (TFP). However, when dividing by sub-periods, we found that the contribution of TFP cannot be neglected since during 1997-2004 it proved to be the main engine of growth in some CEE countries (Czech Republic, Slovakia, Hungary, Lithuania and Romania). Some policy implications are offered based on our results.
Highlights
The methodology we employ is different, the other studies use mainly a fixed effects model, controlling for endogeneity with 2SLS estimators (Abu-Qarn and Abu-Bader 2007) or Fully-Modified estimators (Senhadji 2000) while we allow the individual characteristics of our countries to have an impact on our dependent variable and we control for common yearly variations
If we look at the Central and Eastern European (CEE) taken altogether, we can see that on average capital deepening still remains the main engine of growth even in the mentioned periods, Total Factor Productivity (TFP) does have substantial contributions during 2001-2004 or 1993-1996 (28%)
We carried out a growth accounting exercise for CEE countries by estimating the share of capital per worker from a Cobb-Douglas production function
Summary
Growth accounting exercises have been conducted for many transition economies from CEE, especially by institutions like International Monetary Fund (IMF) or European Central Bank. Schadler et al (2006) study the growth of the 8 CEE that were member states of the EU at that time: the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia They compare the sources of growth in CEE-8 and other emerging economies, during 1990-2004 and find that CEE countries stand out from other developing countries by having small contributions from labour and remarkable contributions from TFP. Trying to find the underlying forces of growth both in the socialist regime and in the capitalist market economy, Bas van Leeuwena and Peter Földvári (2013) look at the growth process of 6 CEEC (Bulgaria, Czech Republic, Slovakia, Hungary, Poland and Romania) and 2 developed countries (Germany and Austria) over a longer period of time during 1920-2006. Results and policy implications could offer a different perspective
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