Policy Change, Growth and Convergence Processes: The Experience of the CEE-10 Countries during EU Accession Negotiations

This dissertation is an empirical investigation of the relationship between macro-economic and institutional policy reforms and the growth performance of the ten Central and Eastern European (CEE-10) countries that acceded to the European Union in the years 2004 and 2007, respectively. Starting from the assumption that the examination of what drove and hindered growth in the CEE-10 countries during accession negotiations can provide indications on how stable growth performance in these newly acceded states is, the dissertation seeks to reveal whether growth rates in the CEE-10 countries have led to income convergence within the region of the CEE-10 at national, NUTS-2 and NUTS-3 levels. Using both qualitative and quantitative methods of analysis, the dissertation wishes to provide fresh insights into how the implementation of macro-economic policy reforms in the CEE-10 countries influenced growth performance, how the implementation of regional policy affects the spatial distribution of growth, and the extent to which growth rates in the CEE-10 countries lead to income convergence in the region. Evidence has been found that the larger the extent of macro-economic and institutional policy reforms, the higher the expected per capita GDP growth rate of the given CEE country is. In what concerns the sub-national regions of the CEE-10, while no unconditional -convergence has been shown, considerable country dummy effects have been identified, the predicted convergence/divergence rates varying with the model specification, the level of analysis and the time period covered. Five robust convergence clubs have been found to exist at the NUTS-3 level in the region. Compared to the endogenous nature of growth processes indicated by the OLS regression models, more sophisticated results have been found using quantile regression. Namely, only the regions in the top convergence club exhibit endogenous growth, while growth in the regions in the bottom club is of neo-classical type, the picture in the three middle ranking convergence clubs is highly individual-invariant specific and is not linearly related to initial regional GDP income levels. The findings of the dissertation highlight, among others, that when evaluating convergence rates, special attention should be paid to the choice of the appropriate level of analysis. Restraining the analysis to only the national level and neglecting sub-national processes could be misleading from the perspective of long-term growth prospects. Similarly, the model approach adopted should be considered carefully, as the widely used pooled OLS regression is insensitive to panel fragmentation and therefore to possible differences in growth processes in the case of regions with different characteristics. A possible alternative for the growth literature that is worth being explored in further research is the recently developed quantile regression analysis.