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EU Accession: A Road to Fast-track Convergence?

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Abstract

This paper investigates the accession-related economic boom in the countries which recently entered the European Union (EU). The analysis tests whether, on top of the standard growth determinants, the period of EU accession made a significant difference to the growth performance of the new member states (NMS). The paper finds that the period of EU accession is characterised by significantly larger growth rates of per-capita GDP, even after controlling for a wide range of economic and institutional factors. This effect is robust and particularly strong for countries with relatively low initial income levels, weak institutional quality and less advanced financial development, suggesting that EU accession has been speeding up the catching-up process and improved the institutions of the laggards among the NMS. The prospect of EU membership which has triggered large capital inflows seems to have fostered economic growth of those NMS with lower degrees of financial depth.

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Notes

  1. The concept of catching-up convergence stems from the convergence hypothesis of the neoclassical growth literature. A Solow-type production function with non-increasing returns to scale typically implies that the long-term behaviour of the economy will be independent of the initial conditions. Because of the concavity of the production function in the capital stock, capital-poor countries will grow sufficiently faster, that is, catch up to the capital-rich countries to offset the initial differences. Catching up is subject to alternative possible factors, including structural transformation, endogenous growth and gains from trade (see Caselli and Tenreyro, 2005).

  2. Because of uncertainty about data accuracy, observations of formerly communist countries prior to 1990 are excluded.

  3. The countries included in the sample were as follows: Albania, Argentina, Australia, Austria, Belgium, Belarus, Brazil, Bulgaria, Canada, Chile, China, P.R.:Hong Kong, China, P.R.: Mainland, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Indonesia, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Morocco, Mexico, Macedonia: FYR, Malta, Malaysia, Netherlands, Norway, New Zealand, Philippines, Poland, Portugal, Romania, Russia, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Ukraine, United Kingdom and Uruguay. Besides data availability, the choice of emerging market countries is guided by the attempt to create a control group as similar to the NMS as possible. For this reason developing and least developed countries as well as countries with very large shares of oil exports are not included.

  4. See, for example, Barro and Sala-i-Martin (2004), Levine and Renelt (1992), and Temple (1999), for an overview of explanatory variables in empirical growth analysis.

  5. These indicators permit to capture major transition-related and accession-related elements, including change in ownership of financial and non-financial firms and protection and enforcement of property rights. Compared with the EBRD transition indicators (used, for instance, in Falcetti et al., 2006), they are available also for non-transition countries. Compared with the World Bank Governance Indicators (used, eg, in Iradian, 2007), they are available for a longer time period.

  6. Because of missing data for several variables for the latest years in the post-2005 period, that last sub-period is averaged over the maximum available data points.

  7. In all regressions, the omitted regional dummy is that for the OMS, the omitted period dummy is the 1995–1999 period. Hence, the non-omitted region and time dummies represent the difference to the OMS and with respect to the 1995–1999 period.

  8. We thank an anonymous referee for pointing out this issue.

  9. For the detailed EU accession criteria, see http://europa.eu/scadplus/glossary/accession_criteria_copenhague_en.htm.

  10. The difference-in-difference approach quantifies the effect of the difference in time periods and country groups. The accession dummy ‘NMS during 2000–2004’ therefore refers to the difference between the accession period (2000–2004) and the reference period (1994–1999) for the NMS, minus the same difference for the OMS, controlling for other factors. The actual average growth rates were as follows.illustration

    figure b

  11. Indeed, actual growth rates of real per-capita GDP were larger in the NMS in 1995–1999 than in the other transition countries.illustration

    figure a

  12. See Schadler et al. (2006). Barro and Sala-i-Martin (2004) show that the relative price of investment is a more robust and less endogenous determinant of growth than the investment ratio.

  13. Each of the three variables is standardised to mean zero and standard deviation of one before creating the interaction terms to facilitate the interpretation of coefficients.

  14. Employing the ratio of liquid liabilities (M3) to GDP as an alternative measure of financial development leads to very similar results. Rousseau and Wachtel (2009) examine the impact of financial development on growth in more depth.

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Author information

Authors and Affiliations

  1. DG Economic and Financial Affairs, European Commission, Rue de la Loi 200, Brussels, 1049, Belgium

    Uwe Böwer & Alessandro Turrini

  2. Centre for Economic Policy Research (CERP), 53–56 Great Sutton Street, London, ECIV ODG, United Kingdom

    Alessandro Turrini

Authors
  1. Uwe Böwer
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  2. Alessandro Turrini
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Appendix

Appendix

Details on data sources and variable definitions

  • Growth in real GDP per capita (%). Source: World Development Indicators.

  • Initial real GDP per capita (PPP): value recorded in the first year of each 5-year periods. Source: Penn World Tables.

  • Population growth (%). Source: Would Development Indicators

  • Openness: sum of imports and exports on GDP (%). Source: Penn World Tables.

  • Years of schooling: average years of schooling across whole population. Source: Barro and Lee.

  • Terms of trade growth (%). Source: World Development Indicators.

  • Quality of legal system: index computed by Fraser Institute summarising elements of legal system and property rights protection.

  • Freedom of trade: index computed by Fraser Institute summarising information on tariff and non-tariff barriers and capital movement controls.

  • Quality of regulation: index computed by Fraser Institute summarising elements (including the extent of public versus private ownership) of regulations affecting labour, product and financial markets.

Table A1

Table a1 Further robustness checks
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Böwer, U., Turrini, A. EU Accession: A Road to Fast-track Convergence?. Comp Econ Stud 52, 181–205 (2010). https://doi.org/10.1057/ces.2010.7

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