Determinants of economic growth in Central and Eastern Europe: the global crisis perspective

This article presents an empirical analysis of economic growth determinants in the 10 Central and Eastern European (CEE) countries Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. The analysis covers the period 1993-2009. All the calculations are performed on five three-year subperiods and one two-year subperiod: 1993-95, 1996-98, 1999-2001, 2002-04, 2005-07 and 2008-09. The analysis is composed of three steps: data selection, correlation analysis and regression analysis. The correlation analysis is based on the coefficient of partial correlation to exclude the impact of the global crisis. In the regression analysis we build 10 alternative variants of empirical models of economic growth. Our results suggest that the most important economic growth determinants in the CEE countries are investment rate (including FDI), human capital measured by the education level of the labour force, financial sector development, good fiscal stance (low budget deficit and low public debt), economic structure (high services share in GDP), low interest rates and low inflation, population structure (high share of working-age population), development of information technology and communications, high private sector share in GDP and favourable institutional environment (economic freedom, progress in market and structural reforms). Our study indicates that the CEE countries have developed in line with the hypothesis of income level convergence (both in absolute and conditional terms). This means that less developed CEE economies grew on average faster than more developed ones.