CESEE and EU: Closing the remaining gaps · CESEE and EU: Closing the remaining gaps 26th Economic...
Transcript of CESEE and EU: Closing the remaining gaps · CESEE and EU: Closing the remaining gaps 26th Economic...
CESEE and EU: Closing the remaining gaps
26th Economic Forum in KrynicaKrynica, September 2016
Bas B. Bakker Senior Regional Resident Representative
for Central and Eastern Europe
CESEE is still much poorer than Germany
2
ALB
ROU
RUSPOL
UKRBIH
SRB & MNE
MKD
BLR BGRHRV
LVA LTUHUN
SVK
ESTCZE
SVN
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
1950 1960 1970 1980 1990 2000 2010
GDP per capita in Germany(in constant 2014 dollars, PPP-adjusted)
Per capita income in CESEE countries as of 2015
How to close gap?
Through combination ofMore capital per workerHigher employment to population ratioMore efficient use of inputs.
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Capital
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Capital stock per worker in CESEE is still much lower than in Western Europe
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BEL
BGR
CZE
DNK
DEU
EST
IRL
GRC
ESP
FRA
HRV
ITACYP
LVA LTU
LUX
HUN
MLT
NLD
AUT
POL
PRT
ROU
SVNSVK
FIN
SWE
GBP
y = 0.2725x + 11.738R² = 0.8154
0
20
40
60
80
100
120
0 50 100 150 200 250 300 350
Capital stock per employed and productivity, 2015(thousands of 2010 EUR)
GD
P pe
r em
ploy
ed
Capital stock per employed
But investment rates are too low compared with Western Europe for a rapid catch-up
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Average investment rate(percent of GDP)
2003-06 2011-15
10 - 1515 - 2020 - 2525 - 3030 - 3535 - 40
Investment needs are large: infrastructure less developed than in Western Europe
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Highways
Colored lines denote railways with maximum speed above 200 km/h
Railways
Increased investment would necessitate higher saving (otherwise foreign capital needed)
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-15
-10
-5
015
20
25
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Saving rate
Investment rate
Saving and investment rate in CESEE-EU countries (percent of GDP)
Current account deficit (rhs)
But how to increase domestic saving?
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Little appetite to increase government saving (i.e., reduce deficits)
Corporate saving will come under pressure from tightening labor markets
Can household saving be increased?
Labor
10
40
45
50
55
60
65
70
75
HRV ROU SVK BGR POL HUN SVN LTU LVA CZE EST DEU
Employment rates have increased sharply since 2000
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Employment rate in 2000 and 2015(percent)
2015
2000
Note: For HRV data for 2002 and 2015.
Labor markets are tightening—labor may soon become scarce
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2
4
6
8
10
12
14
16
18
20
2000 2003 2006 2009 2012 20152
4
6
8
10
12
14
16
18
20
2000 2003 2006 2009 2012 2015
Unemployment rates(percent)
Czech Rep.Hungary
Poland
Bulgaria
Slovakia
Estonia
Latvia
Lithuania
-15
-13
-11
-9
-7
-5
-3
-1
1
3
5
BGR
UKR
ROM
BLR
LTU
BIH
POL
RUS
LVA
MD
A
HRV SVN
HU
N
EST
SRB
SVK
ALB
CZE
MKD
MN
E
Working-age population is falling rapidly
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2005-15
2015-25
Working age (15-64) population growth (percent)
Productivity
14
TFP was growing rapidly before crisis, but has slowed sharply
15
-2
-1
0
1
2
3
4
5
6
7
8
BIH
BGR
HRV BL
R
HU
N
CZE
SVN
MKD UKR PO
L
SVK
ALB
ROU
EST
RUS
LTU
LVA
MD
A
2000-07
2010-14
Average TFP growth (percent)
Why has TFP growth in CESEE slowed and how can we accelerate it?
Why did TFP slow? Partly global phenomenon (happened in other
countries and regions as well) Why has it happened globally? (we really do not
know much) How can we accelerate it?
We have a bunch of variables that are associated with higher TFP
But we do not have good models that explain the link
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Variables that are associated with higher TFP
Increased competition More use of technology More R&D Foreign firms can help More venture capital Further transformation of economy
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Increased competition would support productivity
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Standardized indicators of market development
Min MaxCompetition (Global Competitiveness Report), 2015-16
Product Market Regulation (OECD), 2013
Competition Policy (EBRD), 2014
Min Max
Min Max
BIH NLDESTDEU
RUS NLD
SVK
DEU
BLR
ESTLVALTUPOL
0
10
20
30
40
50
60
70
80
BGR
ROU
PRT
LTU
POL
GRC
HU
N
CZE
EST
CYP
ITA
HRV SV
K
SVN IRL
ESP
FRA
GBR
NLD
DN
K
FIN
As would more use of technology
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Share of employment using computer in non-financial enterprise sector, 2015 (percent)
Note: CESEE countries in orange.
0
1
2
3
4
5
6
7
8
9
10
BGR HRV SVK EST POL PRT CZE HUN GBR ITA ESP SVN NOR DEU AUT FIN NLD
R&D is very low
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Share of R&D employment in manufacturing, 2011 (percent)
Total
Foreign-ownedenterprises
Note: CESEE countries in orange.
0
50
100
150
200
250
DN
KES
TD
EU LUX
FRA
SWE
SVN
AUT
NO
RCY
PFI
NN
LD ITA
POL
GBR ES
PH
RV LTU
PRT
BGR
BEL
ROU
GRC CZ
ESV
KLV
AH
UN
Foreign companies may bring higher productivity
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Ratio of labor productivity in foreign- and domestically-controlledmanufacturing enterprises, 2013 (percent)
Note: CESEE countries in orange.
0.00
0.02
0.04
0.06
0.08
0.10
0.12
ROU CZE ITA BGR POL AUT ESP BEL HUN DEU NLD GBR SWE FRA PRT IRL FIN LUX DNK
Investment in later stage
Investment in start-up stage
Investment in seed stage
Venture capital financing isunderdeveloped
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Venture capital investments, 2015 (percent of GDP)
Note: CESEE countries highlighted in orange.
Further transformation: employment share of agriculture is still high
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0
10
20
30
40
50
60
70
80
90
100
Slov
akia
Czec
h Re
p.Es
toni
aH
unga
ryLa
tvia
Lith
uani
aSl
oven
iaPo
land
Bulg
aria
Rom
ania
Luxe
mbo
urg
Ger
man
yBe
lgiu
mU
nite
d…N
ethe
rland
sD
enm
ark
Swed
enFr
ance
Spai
nIta
lyFi
nlan
dAu
stria
Irela
ndCy
prus
Port
ugal
Gre
ece
Employment structure(percent)
NMS Other EU
AgricultureIndustry
Regression suggest gains from structural reforms may be substantial
24Source: IMF, CESEE Regional Economic Issues (Spring 2016)
Potential efficiency gains from structural reforms(percent)
Thank you