The transition economies since the early 1990s

Dr Matthias Morys
Department of Economics
University of York (UK)
 How successful has “transition” been
in Central, East and South-East Europe been?
What is “transition”?
• economic dimension: from command to market
• political dimension: liberal democracies based on the rule of law
• international/geopolitical dimension: necessarily EU? Commonwealth of Independent States (CIS) as alternative?
Why were transition economies not simply classified as developing/emerging economies in the 1990s?
• “poor in a different way”: industrialised, (overly) strong state, common culture with Western Europe
• Complete absence of typical problems of developing/emerging economies: population explosion, poor medical
and hygienic conditions etc.
• Achievements of communism: universal healthcare, role of women etc.
Does “transition” end at some point?
• Global Financial Crisis of 2008
• Full convergence with Western European economies? Which one in particular?
Successes and failures of transition
• A “Western” Eastern Europe and an “Eastern” Eastern Europe?
• Re-emergence of older classifications such as Central, Eastern and South-East Eruope?
22 Central, East and South-East European countries
21 European Transition Economies (w/o Greece)
7 East European countries
4 Central European countries
11 South-East European countries
 Long 19th century Interwar period Communism Transition
Eastern Europe Russia Soviet Union Soviet Union Russia
Estonia Estonia
Latvia Latvia
Lithuania Lithuania
Belarus
Ukraine
Σ1 Σ4 Σ1 Moldova Σ7
Central Europe Czechoslovakia Czechoslovakia Czech Republic
Slovakia
Austria-Hungary Hungary Hungary Hungary
Σ1 Poland Σ3 Poland Σ3 Poland Σ4

South-East Europe Ottoman Empire

Albania Albania Albania
Bulgaria Bulgaria Bulgaria Bulgaria
Greece Greece Greece Greece
Romania Romania Romania Romania
Serbia Yugoslavia Yugoslavia Bosnia and Hercegovina
Σ5 Σ5 Σ5 … Σ 11

# of countries covered ΣΣ 7 ΣΣ 12 ΣΣ 9 ΣΣ 22
Convergence or divergence to Western Europe?
Mid-19th century - 2008
Central Europe Eastern Europe South-East Europe
Representative country Hungary Russia Bulgaria, Romania

1st observation 1840 1860 1870 (1st common obs.)

GDP p.c. as % of Britain 39.1% 37.1% 32.3%
2nd observation 1938 1938 1938
GDP p.c. as % of Britain 42.4% 34.3% 21.9%
3rd observation 2008 2008 2008
GDP p.c. as % of Britain 35.9% 32.0% 29.1%
Sources: Schulze&Kopsidis (2019), Maddison (2013).
• No clear evidence of long-run convergence with Western Europe
• CESEE countries have operated typically at 1/3 of Britain and Germany
• Intra-CESEE performance: Central Europe > Eastern Europe > South-East Europe
 At what level does CESEE enter the transition period?
(data below based on Voskoboynikov 2019)
• EU-12 (= EU-15 before 2004 enlargement but w/o Greece, Portugal, Lux.)
• CESEE countries in 1990 on average approx. 1/3 of EU-12, but economically
advanced regions / provinces within these provinces up to 67.6% of EU-12
• Precisely these regions / provinces seek political independence
3 Baltics countries, Czech Republic, Slovenia
• Evidence of persistence
richest CESEE parts before WW II
long-run evidence (Dennison&Ogilvie 2014)
little economic geography forces during state socialist period
join EU in 2004 and quickly adopt the euro (exception: Czech Republic)
 Integration pathways and policy packages
(Kossev&Tompson 2019)
Political and economic integration during transition exhibits common features:
• trade liberalisation
winners and losers of trade liberalisation
opening up to whom?
• financial opening
¾ of all 1990 capital exports went to 4 Visegrad countries
• movement of people
Migrating to Western Europe vs. migrating to Russia
To what extent is migration beneficial for the sending countries?
• institutional integration
International organisations such as IMF, World Bank, OECD
EU vs. Eurasian Economic Union (2014, currently Russia, Belarus, Kazakhstan,
Kyrgyzstan, Armenia)
Annual GDP growth in the CESEE economies in 1990–2011

Bal: Baltic countries CIS-4 Russia, Ukraine, Belarus, Moldavia

Source: Voskoboynikov (2019)
 Integration pathways and policy packages
(Kossev&Tompson 2019)
• Four groups can be formed (& connected to theories of economic development):
(1) commodity-rich countries (Russia – hydrocarbons&metals; Ukraine – metals; Belarus: oil
refinery of Russian crude; Central Asia: Kazakhstan, Azerbaijan, Turkmenistan –
hydrocarbons)
(2) Easy (Western) market access countries: Czech Republic, Poland, Slovakia, Hungary
Better industrial structure in 1989 gives head-start
Integrate quickly into German-led supply chains (Roaf et al., 2014)
(3) Radical reformers (Baltic countries and Estonia in particular)
Compensate slightly worse market access by “free-marketer credentials”
Go into industries where distance matters less (IT)
(4) Remaining countries: export labour intensive products - or they simply export their
workforce
Moldova, Albania, Bulgaria, Romania; Central Asia: Tajikistan, Kyrgyzstan
 How important was the EU perspective?
• Transition: transire from Moscow to Brussels? transire to well-defined end point?
• Endogeneity? EU endorses the potential winners more strongly
5 out of 8 of 2004 enlargement top the 1990 CESEE GDP p.c. league
4 CEE countries alone receive ¾ of 1990 capital imports into 22 CESEE
countries (Kossev&Tompson 2019)

• SEE: slow integration (Bulgaria, Romania in 2007, Croatia in 2013), but clear membership
perspective: (dual) importance of small population numbers
• Belarus was the only CESEE to catch up with EU-12 between 1990 and 2008 despite no-
membership perspective

• Eastern Europe: economic geography goes to the East + large population numbers
Structural change in CEE, Russia and EU-
12
Share of CEE
hours worked
Russia
by
EUR12
sector 5)

1995 2008 1995 2008 1995 2008

4.7 3.4
Agriculture 23.3 15.1 27.9 21.5
5.3 5.0
Extended Mining 1) 6.2 6.8 3.2 4.7
19.5 15.3
Manufacturing 23.1 21.6 17.2 13.7
8.2 7.8
Other Goods 2) 8.3 10.0 9.6 9.6
36.9 42.1
Market Services 3) 23.4 28.4 22.9 30.0
25.5 26.5
Non-Market Services 4) 15.7 18.1 19.1 20.4

Source: Voskoboynikov (2019).

Table 1: Economic complexity index ranking, transition countries various years
Economic Complexity Index (Ranking)
1995 2000 2006 2014
Slovenia 13 13 11 11
Czech Republic 14 9 8 7
Slovak Republic 18 16 17 13
Hungary 23 21 16 9
Georgia 24 42 55 62
Poland 27 23 24 27
Croatia 28 28 29 32
Romania 31 33 32 29
Belarus 32 24 22 31
Estonia 33 40 31 25
Bulgaria 34 37 42 38
Kazakhstan 35 67 70 80
Lithuania 36 43 34 34
Russia 37 31 33 50
Latvia 38 36 35 35
Moldova 39 56 60 59
Bosnia and Herzegovina 40 47 40 37
Macedonia 41 57 66 67
Ukraine 46 32 37 43
Azerbaijan 53 71 101 110
Albania 86 60 81 84
Turkmenistan 95 110 115 103
Serbia - - 38 41
Source: Atlas of Economic Complexity http://atlas.media.mit.edu/en/resources/data/

Source: Kossev&Tompson (2019)