Achieving Rapid Growth in the Transition Economies of Central Europe

Introduction

The preeminent economic challenge for the Central European economies in transition (hereafter CEEs) is to grow rapidly for a sustained period of time in order to narrow the economic gap with Western Europe. There are two important reasons to believe that the gap can be reduced sharply in the next couple of decades. First, before the Soviet imposition of socialism on the CEEs at end of World War II, the CEEs had enjoyed per capita income levels comparable to those of many countries of Western Europe. Czechoslovakia was one of the most prosperous industrial economies of Europe, while Poland and Hungary had income levels comparable to those of the poorer economies of Western Europe, such as Greece, Portugal, and Spain. In 1955, for example, Poland had a higher estimated per capita income than Spain, $715 versus $516 measured at purchasing power parity (see Balassa, 1970). By 1993, the Polish per capita  income was a mere 37 per cent of Spain's. Second, and more generally, economic history shows that poorer countries that are closely integrated with richer countries tend to grow more rapidly than the richer countries, thereby tending to narrow the gap in per capita income levels.