Advertisement

The Second Transition: Eastern Europe in Perspective

  • Stefania Fabrizio
  • Daniel Leigh
  • Ashoka Mody
Chapter

Abstract

The countries of Eastern Europe have achieved two remarkable transitions in the short period of the last two decades: from plan to market and, then, in the run-up to and entry into the European Union, riding a wave of global trade and financial market integration. Focusing on the second transition, this paper reaches three conclusions. First, by several metrics, East European and East Asian growth performances have been about on par since the mid-1990s; both regions have far surpassed Latin American growth. Second, the mechanisms of growth in East Europe and East Asia have been very different. East Europe has relied on a distinctive – often discredited – model, embracing financial integration, with structural change to compensate for appreciating real exchange rates. In contrast, East Asia has contained further financial integration and maintained steady or depreciating real exchange rates. Third, the ongoing financial turbulence has dulled the sheen on East European performance but, thus far, has not obviously differentiated emerging market regions: rather, the hot spots in each region reflect individual country vulnerabilities. The paper, in closing, speculates on whether the East European growth model is sustainable and replicable.

Keywords

European Union Real Exchange Rate Trade Openness Financial Integration Foreign Bank 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Notes

Acknowledgments

The authors are grateful for generous comments to Tassos Belessiotis, Ryszard Rapacki, István P. Székely, and to several participants at the workshop organized by Directorate-General for Economic and Financial Affairs (DG ECFIN) of the European Commission on “Five years of an enlarged EU – a positive-sum game,” Brussels on 13 and 14 November 2008. Susan Becker provided valuable research assistance.

References

  1. Abiad, A., Leigh, D., & Mody, A. (2008). International finance, capital mobility, and income convergence. International Monetary Fund, mimeo.Google Scholar
  2. Blanchard, O. (2006). Adjustment within the euro: The difficult case of Portugal. Cambridge, MA: Massachusetts Institute of Technology, Mimeo.Google Scholar
  3. Center for International Development and Conflict Management. (2007). Polity IV project: Political regime characteristics and transitions, 1800–2007.http://www.systemicpeace.org/polity/polity4.htm
  4. Chinn, M., & Ito, H. (2006). What matters for financial development? Capital controls, institutions, and interactions. Journal of Development Economics, 81(1), 163–192.CrossRefGoogle Scholar
  5. Claessens, S., Van Horen, N., Gurcanlar, T., & Sapiain, J. M. (2008). Foreign bank presence in developing countries 1995–2006: Data and trends. Washington: World Bank.Google Scholar
  6. Danninger, S., & Jaumotte, F. (2008). Divergence of current account balances across emerging economies. IMF World Economic Outlook, September 2008.Google Scholar
  7. European Commission (2003). European competition report, 2003. European Commission Staff Working Document, SEC(2003)1299.Google Scholar
  8. European Commission (2009). Five years of an enlarged EU – Economic achievements and challenges. European economy, 1/2009.Google Scholar
  9. Fabrizio, S., Igan, D., & Mody, A. (2006). The dynamics of product quality and international competitiveness. IMF Working Paper, No. 07/97. Washington, DC: International Monetary Fund.Google Scholar
  10. Fabrizio, S., & Mody, A. (2006). Can budget institutions counteract political indiscipline? Economic Policy, 21, 689–739.CrossRefGoogle Scholar
  11. Fabrizio, S., & Mody, A. (2008). Breaking the impediments to budgetary reforms: Evidence from Europe. IMF Working Paper, No. 08/82. Washington, DC: International Monetary Fund.Google Scholar
  12. Fischer, S., & Sahay, R. (2004). Transition economies: The role of institutions and initial conditions. Festschrift in honor of Guillermo Calvo, April 15–16, 2004. Washington, DC: International Monetary Fund.Google Scholar
  13. Hausmann, R., Pritchett, L., & Rodrik, D. (2005). Growth accelerations. Journal of Economic Growth, 10(4), 303–329.CrossRefGoogle Scholar
  14. Hermann, S., & Winkler, A. (2009). Real convergence, financial markets, and the current account – emerging Europe versus emerging Asia. In F. Keereman & I. Szekely (Eds.), Five years of an enlarged EU. Heidelberg: Springer.Google Scholar
  15. Luengnaruemitchai, P., & Schadler, S. (2007). Do economists’ and financial markets’ perspectives on the New Members of the EU differ? IMF Working Paper, No.07/65. Washington, DC: International Monetary Fund.Google Scholar
  16. Prasad, E., Rajan, R., & Subramanian, A. (2006). Patterns of international capital flows and their implications for economic development. Presented at the symposium “The new economic geography: Effects and policy implications”. Jackson Hole, Wyoming: The Federal Reserve Bank of Kansas City. Retrieved August 24–26, 2006, from http://www.kc.frb.org/PUBLICAT/SYMPOS/2006/sym06prg.htm
  17. Rodriguez, F., & Rodrik, D. (2000). Trade policy and economic growth: A skeptic’s guide to the cross-national evidence. In B. Bernanke & K.S. Rogoff (Eds.), Macroeconomics annual 2000. Cambridge, MA: MIT Press for NBER, 2001.Google Scholar
  18. Rodrik, D. (2008). The real exchange rate and economic growth. Cambridge, MA: John F. Kennedy School of Government, Harvard University.Google Scholar
  19. Roland, G. (2005). After enlargement: Institutional achievements and prospects in the new Member States. Proceedings of the 3rd ECB conference The new EU Member States: convergence and stability. Frankfurt: European Central Bank. pp. 35–58.Google Scholar
  20. Schadler, S., Mody, A., Abiad, A., & Leigh, L. (2006). Growth in the central and eastern European countries of the European Union. IMF Occasional Paper, No. 252. Washington, DC: International Monetary Fund.Google Scholar
  21. Wade, R. (1990). Governing the market. Princeton: Princeton University Press.Google Scholar
  22. World Bank. (1993). The making of the east Asia miracle: Economic growth and economic policy. Oxford: Oxford University Press.Google Scholar
  23. Zettelmeyer, J. (2006). Growth and reforms in Latin America: A survey of facts and arguments. IMF Working Paper, No. 06/210. Washington, DC: International Monetary Fund.Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2010

Authors and Affiliations

  1. 1.Strategy, Policy and Review DepartmentIMFWashingtonUSA
  2. 2.Research DepartmentIMFWashingtonUSA
  3. 3.European DepartmentIMFWashingtonUSA

Personalised recommendations