Real Convergence, Capital Flows, and Competitiveness in Central and Eastern Europe

Belke, Ansgar Hubertus; Schnabl, Gunther; Zemanek, Holger

doi:10.2139/ssrn.1499187

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Real Convergence, Capital Flows, and Competitiveness in Central and Eastern Europe

DIW Berlin Discussion Paper No. 937

32 Pages Posted: 4 Nov 2009

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Holger Zemanek

University of Leipzig - Institute for Economic Policy

There are 3 versions of this paper

Date Written: October 15, 2009

Abstract

The paper scrutinizes the role of wages and capital flows for competitiveness in the new EU member states in the context of real convergence. For this purpose it extends the seminal Balassa-Samuelson model by international capital markets. The augmented Balassa-Samuelson model is linked to the monetary overinvestment theories of Wicksell and Hayek in order to trace cyclical deviations of real exchange rates from the productivity-driven equilibrium path. Panel estimations for the period from 1993 to 2008 reveal mixed evidence for the role of capital markets for both the economic catch-up process and international competitiveness of the Central and Eastern European countries.

Keywords: exchange rate regime, wages, Central and Eastern Europe, EMU accession, panel model

JEL Classification: E24, F16, F31, F32

Suggested Citation: Suggested Citation

Belke, Ansgar Hubertus and Schnabl, Gunther and Zemanek, Holger, Real Convergence, Capital Flows, and Competitiveness in Central and Eastern Europe (October 15, 2009). DIW Berlin Discussion Paper No. 937, Available at SSRN: https://ssrn.com/abstract=1499187 or http://dx.doi.org/10.2139/ssrn.1499187