Economic Growth in Bulgaria and Romania

Abstract

The two south-east European countries share the last places among the EU accession countries concerning economic development, structural change and institutional reform. At the same time they are more advanced in these respects than many other south-east European or CIS countries. At the first glance, the two country have a similar track of economic development: first a deep transitional recession in 1990-1992/93, then a modest recovery which proved unsustainable and called for a second stabilisation effort which incurred recession. Both of them inherited highly distorted economic structures from the communist regime and introduced only half-hearted transformation measures in the first half of the 1990s. But economic policies since 1997 have made the two countries radically different from each other. The Bulgarian shock therapy compares with the Romanian muddling through policy. Bulgaria gets better notes from international organisation for its transformation policy than Romania which has a notorious credibility problem. Currently both countries are on a recovery path from earlier setbacks, but the structure of output changes only very slowly, foreign financial constraints are severe and the investment rate is low. These features question the sustainability of the current medium-high GDP growth rates in both countries.