New Member States Research Articles

Analyzing the Threshold Impact of Public Debt on Economic Growth: an Investigation of the New Member States within the European Union

This paper aims to analyze the impact of public debt on economic growth in eleven EU new member states (NMS) from Central and South-Eastern Europe for the period 2000-2019. More specifically, we investigate if there is evidence of a non-linear (quadratic) relationship in this group of countries. Having in mind different economic and financial development, historical connections, and geographical proximity, we split them into three more homogenous groups: Balkan countries (BAL-4), Baltic countries (B-3), and Visegrad countries (VIS-4). The results of our study in all models indicate a statistically significant non-linear impact of public debt ratios on annual GDP per capita growth rates. The results across all models show a significant non-linear impact of public debt ratios on annual GDP per capita growth rates. Further, the calculated debt-to-GDP turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 42.7%-58% of GDP, dependent on which sub-group we have analyzed. In general, the research may contribute to a better understanding of the problem of high public debt and its effect on economic activity in the new EU.

Monetary Integration Effects on Foreign Direct Investments in New EU Member States

This study examines the impact of accession to the Economic and Monetary Union (EMU) on foreign direct investment (FDI) inflows in the 11 New Member States (NMS), during the period 2005-2018. Using panel regression analysis and the gravity model, the influence of macroeconomic indicators on FDI outflows from 21 industrialised countries (including EU and non-European counties, such as Japan and USA) to the NMS is assessed. The empirical results suggest that favourable macroeconomic indicators in the NMS, such as a stable exchange rate, lower inflation, long-term interest rates and EU/EMU membership, are positively correlated with FDI inflows from NMS. Conversely, rising inflation and exchange rate volatility in the NMS are negatively associated with FDI inflows, while inflation in the FDI origin countries is positively correlated with investment in the NMS. The results suggest that joining the EMU has a statistically significant and positive relationship on FDI inflows to the NMS.

Financialization and growth nexus in the EU new member states (NMS): an ARDL bounds testing approach and Granger causality analysis

PurposeThis study aims to explore the short-run and long-run relationships and causality between economic growth and financialization in the new member states (NMS-11) and to provide some policy implications drawn from the empirical findings.Design/methodology/approachThe autoregressive distributed lag (ARDL) bounds test approach to cointegration with the vector error correction model and the cumulative sum of squares (CUSUMQ) test for stability of functions is used between 1995q1 and 2021q4 to examine the existence of cointegration, relationships and causality between economic growth and financialization.FindingsThe findings of the ARDL bounds test demonstrate that the variables included in the models are bound together in the long run, as confirmed by the associated equilibrium correction. The estimated models indicate that the association between selected variables and economic growth is stronger and more statistically significant in the short run compared with the long run. Also, for NMS-11 understudied countries, short-run causality prevails over long-run causality. The changes in the level of financialization have a significant negative effect on the growth rates in the short run, which aligns with findings from previous empirical studies.Originality/valueThis study extends the existing very limited literature about short-run and long-run relationships and causality among economic growth and financialization, including inflation and unemployment variables, to determine their link in the NMS-11. Specifically, the present study reveals that the current level of financialization hampers economic growth and promoting such economic policies further can have adverse effects on the overall economic growth.

The threshold effect of public debt on economic growth: The case of the new European Union member states

The aim of this paper is to analyze the impact of public debt on economic growth and the possible existence of a non-linear relationship in eleven European Union (EU) new member states (NMS) for the period 2000–2019. If we compare this study with the studies of Reinhart and Rogoff (2010) and Kumar and Woo (2010), in this study, we will use more recent data that will enable us to perceive the relationship between public debt and economic growth in the new EU countries. The results of our study show that the debt turning point is roughly between 40.16 and 61.2 percent of GDP, dependent on which subgroup we have analyzed. This paper contributes to determining the point of public debt that would contribute to the economic growth of the new EU member states.

Chinese FDI in Poland and the Czech Republic – inflows, determinants and challenges

Purpose: The objective of this paper is to present Chinese investment flows and the nature of participation, to analyze the differences between host countries, and to identify the determinants of Chinese FDI in Poland and the Czech Republic. Design/methodology/approach: Comparison of the specifics of Chinese direct investments in Poland and the Czech Republic. Findings: The nature of Chinese investment in Europe is changing. After years of being dominated by mergers and acquisitions, Chinese investment in Europe is now more focused on greenfield projects. In 2021, greenfield investments reached €3.3 billion, the highest ever recorded, and accounted for nearly one- third of all Chinese FDI. More recently, the volume of Chinese FDI in Europe has reached the level of European FDI in China (now constrained by restrictions and risks). It matched the level of FDI by Chinese companies in the United States before declining over the past two years, generally due to Covid-19 and the war in Ukraine. Chinese economic presence in Europe can be divided into three areas based on size, destination, and type of acquisition: The core of Europe is formed by the three major target countries (Germany, UK, France), where more capital-intensive investments are made, followed by other Western European countries (EU-15). The new member states (NMS), which joined the EU in 2004, 2007 and 2013, as well as the Western Balkan countries in the process of accession, are associated with China in the 16+1 format (with the exception of Kosovo) and form another gateway to Europe. Due to fewer market opportunities, they receive less direct investment, but China is building infrastructure (ports, highways, railroads) - segments of the Silk Road that will bring Chinese products to mature EU markets (Richtet, 2019). It is unlikely that Chinese investment in Europe will recover in 2023. The Chinese government is expected to maintain strict capital controls, financial retrenchment, and Covid-19 restrictions. The war in Ukraine and the expansion of regulations to monitor and control Chinese investments in the EU and the UK will cause additional difficulties. Originality/value: The article could be an attempt to answer the question of combining macroeconomic and institutional factors to better understand the internationalization of firms (Dunning, Lundan, 2008). There is no doubt, that the Covid-19 pandemic and the war in Ukraine made it necessary to deepen the study of the phenomenon of FDI, its inflows, determinants, and related challenges in a turbulent world. Keywords: foreign direct investments (FDI), People's Republic of China, Czech Republic, Poland, international relationships. Category of the paper: Research paper.

Management of Competitiveness in the EU Member States: The Main Strengths and Weaknesses

The paper's main objective is to investigate the differences in competitiveness among the EU member states. Each nation's competitiveness is determined by its government's management capabilities on the national, regional and local levels and thus poses substantial implications to economic growth. For this purpose, hierarchical clustering as the primary method of investigation was selected. The data mining process was based on extracting GCI score data about individual member states. Based on the GCI score evaluation, the cluster analysis showed two groups of EU member states, according to the 'traditional' division of old member states (OMS) and new member states (NMS). Results showed a statistically significant gap in GCI scores between the OMS and NMS. Furthermore, the within-class variability in the OMS cluster appears to be higher than in the NMS cluster, which underlines growing disparities among old member states. Most significant differences among both groups prevail in the field of institutions, ICT adoption, business dynamism and innovation. Finally, the link between achieved GCI score and average economic growth has been investigated. Contrary to expectations, more developed member states (OMS) showed, on average, relatively lower economic growth rates over the investigated period than the less developed member states (NMS). The results showed a moderately negative link between the GCI score and economic growth, which suggests that a higher GCI score does not mean achieving higher economic growth, whereas member states with lower total GCI scores could outpace the higher ones in terms of economic growth. In many aspects, the EU still resembles two rails in Europe, and a significant gap between OMS and NMS prevails. Relatively higher economic growth of NMS might help reduce the gap over time. However, it may prove a short-sighted, and significant lags in many crucial factors will stiff the competitiveness in the long term.

Impact of foreign direct investment on the Economic Growth of the New member states from Central and Eastern Europe

The goal of this paper is to study the effects of foreign direct investment (FDI) on the economic growth of ten new member states (NMS) from Central and Eastern Europe (CEE), which joined the European Union (EU) in 2004 and 2007 – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Bulgaria and Romania. Croatia is excluded from the analysis since it became a EU member relatively late - in 2013. A vector autoregression (VAR) of annual data for the period 2007-2019 is employed. The empirical results indicate that FDI does not affect the real GDP growth rate of the NMS from CEE. The research results also show that FDI Granger-causes the economic growth of the NMS from CEE neither in the short run nor in the long term.

The Short-Term Effects of European Integration on Mortality Convergence: A Case Study of European Union\u2019s 2004 Enlargement

Although European integration can be expected to result in mortality convergence (reduced mortality differences), a life expectancy divide persists in the European Union (EU) between the old Member States (OMS) in the west and the new Member States (NMS) in the east. Studies investigating the impact of European integration on mortality convergence are rare and did not consider regional differences. We examine the short-term effects of the 2004 enlargement on mortality convergence at the supranational, national, and subnational levels. Using sex-specific life expectancies for 23 Member States (1990–2017) and the NUTS 2 regions in Czechia, Hungary, and Poland for 1992–2016, we examined the trend in sigma and beta mortality convergence measures at the country and regional levels using joinpoint regression. We found no compelling evidence that EU accession influenced the process of mortality convergence between OMS and NMS, or within the three NMS, over the short term. While there was overall beta and sigma convergence at the national level during 1990–2017, no regional convergence showed, and the trends in convergence did not significantly change at the time of EU accession or soon after (2004–2007). The accession in 2004 did not visibly impact the overall process of mortality convergence over the short term, likely because of the greater influence of country and region-specific policies and characteristics. The interaction of Member State and regional contexts with the mechanisms of European integration requires further study. Future enlargement procedures should emphasise tailored support to ensure more equitable gains from European integration.

Determinants, efficiency and potential of agri-food exports from Nigeria to the EU: Evidence from the stochastic frontier gravity model

This study uses an extended gravity model to examine the determinants, efficiency and potential of agri-food exports from Nigeria to the EU for the 1995–2019 period. It uses a stochastic frontier analysis (SFA) to estimate the extended gravity model. The results show that the economic size (GDP) of Nigeria and the EU countries, as well as bilateral distance, positively determine agri-food exports from Nigeria to the EU. Also, the results show that Nigeria's agri-food exports to the EU are negatively determined by the income (per capita GDP) of Nigeria and its EU trading countries, bilateral exchange rate and EU new member states (NMS). The results further show that Nigeria scores relatively low in terms of the efficiency of its agri-food exports to the EU countries. On a final note, the study shows that Nigeria's agri-food exports with the EU have a relatively large potential that has not been exploited. We document policy recommendations in this study.

How environmental performance affects firms’ access to credit: Evidence from EU countries

In response to climate change and environmental degradation, the European Union has recently proposed a long-term strategy targeting a climate-neutral economy by 2050.Sustainable finance plays a crucial role in reducing a country's production-generated emissions since limited access to credit hampers firms from investing in pollution abatement technology. Additionally, high collateral requirements may force firms to replace pollution abatement investment with tangible assets, which are often preferred as collateral in debt financing. Using survey data from firms in ten EU member states, this study investigates the impact of a firm's environmental performance on bank lending decisions and collateral requirements. Our empirical findings suggest that, for the sample countries as a whole, eco-friendly firms are more likely to receive a line of credit and less likely to be imposed collateral requirements. For collateralized loans, desirable environmental performance reduces the odds of high collateral value relative to loan size. Sustainable finance may depend on the levels of economic/financial market development. There are seven EU new member states (NMS) in our sample. Although financial institutions in the EU NMSs reward eco-friendly firms when they make lending decisions, they are less likely to consider environmental performance when imposing collateral requirements. These empirical findings hence provide insightful policy implications for improving the practices of sustainable finance.

Impact of Exchange Rate Regimes and Euro Area Membership on the Economic Growth of the New Member States from Central and Eastern Europe

The goal of this paper is to study the effects of exchange rate arrangements and euro area (EA) membership on the economic growth of ten new member states (NMS) from Central and Eastern Europe (CEE), which joined the European Union (EU) in 2004 and 2007 – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Bulgaria and Romania. Croatia is excluded from the analysis since it became a EU member relatively late - in 2013. A vector autoregression (VAR) of annual data for the period 2007-2017 is employed. The empirical results provide statistical evidence that flexible exchange rates and EA membership favor the economic growth of the NMS from CEE.

Geographies of Participation in Learning Abroad Mobility Among European Youth: A Comparison of Student and Non-student Groups in the EU Member States

In recent decades, learning abroad mobility has become a popular movement and has often been considered among students in higher education. However, in the European Union (EU) context, opportunities to learn abroad are also provided for non-student groups of youth. Accordingly, this study aims to examine the role of certain socioeconomic factors concerning participation in learning abroad mobility and to compare their contribution between students and non-student groups of youth in six country groups in the EU. In so doing, a quantitative method was followed by using the data of Flash Eurobarometer 478. Findings of the multinomial logistic regression analyses show that although there is no significant difference between the EU15 and NMS (new member states) regarding young people’s participation in learning abroad mobility, such difference occurs within the NMS. Students are more likely than nonstudents to participate in general. The age of students, being female and living in rural areas among non-students can also hinder participation.

Economic impact of the EU Eastern enlargement on New Member States revisited: The role of economic institutions

Abstract The paper analyses the economic implications of the accession of New Member States (NMS) to the European Union (EU) in 2004 and 2007. The estimation effects of integration with the EU were carried out as a comparative case study using the synthetic control method (SCM) proposed by Abadie and Gardeazabal. Compared to previous studies analysing the effects of accession to the EU (Campos, Coricelli and Moretti), we check for the importance of the quality of economic institutions for the matching process of the analysed economies with their comparators. The results of the econometric analysis show a positive impact on the country performance 6 years and 12 years after accession to the EU. The gains from accession are large but not universal. For 5 of the 10 analysed countries the difference in levels of per capita gross domestic product (GDP) against the counterfactual is at least 30%.

Rethinking the historical trajectory of ECE: From the “original sin” in democratization to redemocratization

Abstract This paper treats East-Central Europe as a region and investigates its common historical trajectory in the last decades. After 30 years of systemic change and 15 years of EU membership, it is high time for the re-evaluation and reconceptualization of the Europeanization and Democratization process in ECE. It is the key to understand the false start as the original sin in democratization and the reasons of ECE divergence from mainstream EU developments in order to prepare the redemocratization process. The progress of the Europeanization and Democratization process in ECE has been widely described in official documents, but for a balanced and complete picture it is necessary to present also the De-Europeanization and De-Democratization process from the very beginning. Basically, after the collapse of the bipolar world order in 1989, the Eastern enlargement was an economic and political necessity as a substantial part of the EU deepening and widening policy. The EU needed the extension of its economic space and political system that had also been pre-programmed in the mission statement of the Rome Treaty. At the same time, the new member states (NMS) needed the “Return to Europe” for their reintegration into the Western world. However, the capacity for this extension was actually missing on both sides, and it has remained so during the last 30 years of systemic change or the 15 years of EU membership. Altogether, this controversial process has produced a colorful picture of successes and failures in all NMS that will be analyzed in an ECE context.

Generation of energy and environmental-economic growth consequences: Is there any difference across transition economies?

One of the European Union’s (EU) membership conditions includes an ambitious energy policy objective such as energy security, environmental protection and diversification using renewables. However, the impact of the energy policy on environmental sustainability is yet to be assessed. In line with EU energy policy, we investigate the nexus between energy generation and CO2 emissions in three blocs of countries namely Central and Eastern Europe (CEE), Commonwealth of Independent States (CIS) and New Member States (NMS) from 1992–2014. The experimental exercise was conducted using the Generalized Method of Moment. The empirical results show that a 1% increase in renewable energy generation increases CO2 emissions in CIS countries by 0.04% and CEE countries by 0.02% respectively, but decreases CO2 emissions by 0.02% in NMS countries. Both subsamples of NMS and CIS countries conform to the inverted U-shape of the EKC hypothesis. However, the results of the subsample of CEE countries do not uphold the EKC hypothesis. This, suggests that environmental consequences of sustained economic growth in CEE countries does not increase pollutant emissions. Thus, we conclude that there exists a difference in the level of environmental degradation across the blocs. This study highlights the need to embark on decarbonized economic agenda that prioritizes clean environment.

Regional Patterns and Drivers of the EU Digital Economy

This paper examines the progress made by the EU regions on the path of digitalisation and growth of digital economy, by analysing the dynamics and drivers of a selected number of specific indicators, based on Eurostat data running from 2001 to 2016. The study is conducted at regional level, and finally aims to identify policy measures that could enhance the growth of digital economy in the EU area. Moreover, the paper investigates whether a common set of economic and social policy measures is effective in improving several indicators of digital economy, in the New Member States (NMS) as well as in the Old Member States (OMS), given that they still exhibit different patterns of digital transformation at regional level. The increase in tertiary education attainments together with the increase in the number of issued patents are found to be policy measures that generate positive effects for several indicators of digital economy, as well as for the NMS and OMS.

Evaluating the Determinants of EU Funds Absorption across Old and New Member States – the Role of Administrative Capacity and Political Governance

This article assesses the impact of administrative capacity and political governance factors on the absorption of structural and cohesion funds (SCF). We drew on EU‐27 country level data and developed a dynamic panel data model for the 2007–15 implementation period. By using a tobit estimation technique, the results indicated that government effectiveness and public diversion of funds significantly affect the recipient countries ability to absorb EU funds. The results revealed that increasing government effectiveness and combating corruption had significant stronger boosting effects on the absorption of SCF, especially in the new member states (NMS). This might explain why bottlenecks of administrative capacity and political governance are highly relevant for NMS and why these countries generally faced lower absorption rates, as compared to EU‐15. Moreover, the results also underlined that the recent great recession reduced the ability of countries to absorb SCF. Against our expectations, domestic financial capacity and political decentralization were not shown to be decisive for EU funds absorption. In policy terms, our study suggests a focus on administrative capacity‐building and fighting corruption in NMS and across lagging regions of older member states in order to improve absorption rates, while also focusing more on the efficiency and effectiveness of European cohesion policy. Finally, several suggestions are made on how our analysis can be replicated and taken forward by analysts of the European Union's internal development cohesion policy.

Export and total factor productivity of EU new member states

The common denominator of the European Union’s (EU) strategic long-run documents is the role of total factor productivity in fostering future growth and competitiveness. Hence, this article analyses the impact of total factor productivity on export competitiveness in EU new member states (NMS). As opposed to the stagnation of the growth of total factor productivity in the advanced economies, EU NMS exhibited stronger growth that was interrupted due to the 2008 economic and financial crisis. After the crisis, the growth continued but it was not as strong as before. The results of the empirical analysis confirm the vital role of total factor productivity for the export competitiveness of the EU NMS. However, the results also point to the fact that the impact of total factor productivity on export competitiveness is not that beneficial in the countries where the value of total factor productivity has not returned to the pre-crisis level.

Solid waste management in transition

While constructing market economies on the ruins of the central planning systems from theeastern part of Germany to the Pacific coast of Russia, many countries have faced a number ofsimilar problems in the field of the solid waste management. But in the so called 'economiesin transition' these problems were treated in different ways,The group of the countries of Central and Eastern Europe on their way to the EU membershipadopted the European principles of the SWM. They were to find an adequate solution to theessential waste problems earlier and in the very limited time period, On the other hand, thecountries that now belong to the CIS, had somewhat put the problems of the SWM aside,therefore the process is in the most cases yet in its primary stage still. On their way to theeffective SWM, these countries often orient towards the European model as well, thoughhaving more freedom in adapting it to the national circumstances.The objective of the paper presented is to analyze the common problems of the countries intransition, evaluate the effectiveness of the European shaped solutions for the EU newmember states and highlight the positive and negative points to be aware of when reformingSWM in the CIS countries.

Geographical and Strategic Factors in Chinese Foreign Direct Investment in Europe

Recently, the volume of Chinese FDI made in Europe has reached the level of European FDI in China (now constrained by restrictions and risks). It equaled the level of FDI made by Chinese firms in the United States before they began to decline in the last two years. The Chinese economic presence in Europe is divided into three parts in terms of volume, destination, and type of acquisition: The heart of Europe is made up of the three major destinations (Germany, UK, France), where more capital-intensive investments are made, followed by other Western European countries (EU-15). New member states (NMS) that joined the EU in 2004, 2007, and 2013, and Western Balkan countries, in accession to the EU, are associated with China in the 16+1 Format (with the exception of Kosovo) and are another gateway to Europe. They receive less direct investment because of smaller market opportunities but China is building infrastructure (ports, highways, railways)—segments of the Silk Road that will bring Chinese products to the mature markets of the EU.