Institutional Reform and Export Competitiveness of Central and Eastern European Economies

Introduction

The collapse of the Soviet Union in 1991 and the enlargement of the EU are two historical landmarks that have reshaped the European business, political and geographic landscapes of the twenty-first century. Of major significance is the admission of ten former socialist-based, centrally planned economies of the CEE to the EU. The CEEs comprise Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic and Slovenia. Since gaining independence (see the dates in Table 1), the CEEs have embarked on comprehensive economic restructuring and institutional reforms, in order to modernise their economies and improve the standards of living of their citizens. Some CEEs have approached these reforms in a gradual manner, while others have pursued a ‘big bang’ strategy (Bjørnskov & Potrafke, 2011). The different approaches to economic restructuring and institutional reforms can be explained largely by the physical, demographic and socioeconomic diversity of the CEE economies. The information in Table 1 shows that some of the CEEs are large economies (e.g., Poland, which has 40 million people) while others are very small (e.g., Estonia, which has only 1.4 million people). Similarly, the rate of economic growth varies significantly in the CEEs while their geographic size, in terms of land mass, also varies substantially. In terms of income, the CEEs can be broadly categorised into three distinct groups: low income (Bulgaria and Romania); middle income (Estonia, Hungary, Latvia, Lithuania, Poland) and high income (the Czech Republic, the Slovak Republic and Slovenia). Despite being members of the EU, only three countries (Estonia, the Slovak Republic and Slovenia) have adopted the euro as of July 2013. Finally, the CEEs also vary substantially in terms of their overall international competitiveness rankings. According to the World Economic Forum’s global competitiveness ranking of 144 countries in 2012–13 (see Table 1), Estonia (34^th) was the most highly ranked CEE country, while Romania was ranked as the least competitive CEE country (78^th). It is also interesting to note that between 2006 and 2012 only two CEEs (Bulgaria and Poland) improved their world competitiveness rankings. Hence, given the diversity of the CEEs, the challenges they face in modernising their economies following their independence are uniquely different and require different approaches (Bjørnskov & Potrafke, 2011).

Sources: EU (2013); World Economic Forum (2013); Mundi Index (2013); Central Intelligence Agency (2013).