Emerging European Economies After the Pandemic : Stuck in the Middle Income Trap?

This edited volume examines the development path of eight Central and Eastern European countries with an overlapping historical background that joined the European Union between 2004 and 2013, and identifies the main similarities and differences between the countries concerned. Based on wide comparative data analysis of Bulgaria, Croatia, The Czech Republic, Hungary, Poland, Romania, Slovakia, and Slovenia, each chapter in the volume provides detailed information about the state of the economy in a specific area preceding the pandemic shock. The book offers a detailed snapshot of the state of the different areas of the economy, starting from the time when the countries concerned came out of the 2008 financial crisis, up to the date when COVID-19 hit. Further, each chapter analyzes the effects of this unprecedented shock on a particular field, which is followed by highlighting the main problems the countries are facing at present and in the near future, together with identifying the available policy options. Finally, before concluding and making general and country-specific policy recommendations, some thoughts will be given to longer-term prospects. More specifically, the question of how the subject area could contribute to avoiding the "middle-income-trap" that this region may be facing will be addressed. The comprehensive approach makes this volume a must-read for scholars and students of economics, as well as policy decision-makers in Europe, interested in a better understanding of the region's economic development. Foreword Preface Acknowledgements Contents List of Contributors Chapter 1 Convergence to the Centre 1.1 Introduction 1.2 Convergence 1.2.1 A Brief Theory 1.2.2 Development and Growth 1.2.3 Sources of Growth 1.2.4 External Finance and the Demand Side 1.2.5 Social Convergence 1.3 Potential Lessons from the 2008-2012 Global Financial Crisis: a Resilience Analysis 1.4 The Covid Shock 1.4.1 Cyclical Positions 1.4.2 Macroeconomic Developments 1.4.3 Social Developments: a First View 1.4.4 Comparing the 2008-2012 and the Covid-19 Shocks 1.5 Looking Beyond: Expected Recovery 1.5.1 Forecasting Uncertainty 1.5.2 Persistent Changes 1.5.2.1 Past Pandemics 1.5.2.2 Global Value Chains 1.5.2.3 Scarring 1.6 Summary and Implications 1.6.1 Convergence 1.6.2 Convergence and Resilience 1.6.3 The Covid Shock and its Comparison to the Global Financial Crisis 1.6.4 Future Prospects References Chapter 2 Financial Markets: Banks and Capital Markets 2.1 Introduction 2.2 Basic Characteristics of Financial Intermediation in the EEE 2.2.1 Depth and Structure of Financial Intermediation 2.2.2 Specificities of the Shadow Banking System in the EEE 2.2.3 Ownership Structure of the Banking System in the EEE 2.3 Post-GFC Financial System in the EEE – from Stabilization to the Covid Shock (2014-2019) 2.3.1 Banks 2.3.1.1 Regulatory and Institutional Changes Post-GFC 2.3.1.2 Balance Sheet Developments About the Banking Data 2.3.1.3 Funding 2.3.1.4 Capital Position 2.3.1.5 Asset Quality 2.3.1.6 Profitability 2.3.2 Capital Markets 2.3.2.1 Regulatory and Institutional Changes Post-Crisis 2.3.2.2 Capital Markets Environments 2.3.2.3 Securities Markets 2.3.3 Investors – the Asset Management Industry 2.4 Covid and the EEE Financial System 2.4.1 Banks 2.4.1.1 Covid-related Regulatory Measures 2.4.1.2 Practices with Moratoria in the EEE 2.4.1.3 Non-Performing Loans (NPL) during the Pandemic 2.4.1.4 Lending During the Pandemic 2.4.1.5 Banks’ Profitability during the Pandemic 2.4.1.6 Banks’ Capital Position 2.4.1.7 Managing Non-Performing Loans post-Covid 2.4.2 Capital Markets 2.4.2.1 Covid-related Capital Market Regulatory Measures 2.4.2.2 Capital Market Developments 2.5 Conclusions and Longer-Term Perspectives Annex References Chapter 3 Firm Size, Productivity, EU Funds, and Corruption 3.1 Introduction 3.2 Firm Size Distribution in the EEE 3.2.1 Small is Beautiful, but Large is Useful 3.2.2 Average Firm Size in the EU Countries 3.2.3 Factors of Firm Size Distribution 3.2.4 Firm Size Differences and Labor Productivity 3.2.5 The Role of Foreign-owned Firms in FSD and Exports in the EEE 3.2.5.1 The Role of Foreign-owned Firms in FSD 3.2.5.2 Firm Size Distribution, FDI and Exports 3.2.6 Impacts of Covid-19 and Economic Policy Dilemmas in the Context of Different Firm Sizes 3.3 Corruption Risk and Intensity of Competition of EU-funded Public Tenders 3.3.1 Corruption, Competition, and EU Funds as Foreign Aid 3.3.2 Corruption Risk and EU Funds 3.4 Policy Implications References Chapter 4 Labour Markets: Structural Characteristics and the Impact of Two Crises 4.1 Introduction 4.2 Demography and Migration 4.3 Employment Situation 4.4 GDP and Employment Comparison 4.5 Sectoral Employment Structures and the Impact of Economic Recessions 4.6 Wage Growth, Minimum Wage, and the Cost of Living 4.7 Unit Labour Costs and Their Decomposition: Dynamics Over Crisis and Recovery Phases 4.8 Regional Disparities in Labour Markets 4.9 The Effects of the Covid Shock 4.10 Impact of the Covid-crisis on Occupations 4.11 Long-term Prospects and Policy Recommendations References Chapter 5 Transport and Mobility 5.1 Introduction 5.2 Transport Policy in the EEE Region 5.2.1 Infrastructure Development and Prevalence of EU Funds 5.2.2 Public Service Provision 5.2.3 Deregulation of Transport Markets 5.3 Emerging Trends in Mobility 5.3.1 Greening of Vehicle Fuels 5.3.2 New Mobility Services 5.3.3 ICT Developments Changing Needs ICT Infrastructure and Use in the EEE Work from Home: Telework and Telecommuting Online Shopping Travel and Accommodation Services 5.4 The Effects and Aftermath of the Covid Shock 5.4.1 Mobility Restrictions and Impacts 5.4.2 Public Interventions in the Pandemic Public Service Provision Road Use and Parking Regulation 5.4.3 Downturn in Liberalised Transport Markets Airline Industry Case study Liberalised Land Transport Modes 5.5 Prospects after the Pandemic 5.5.1 The Role of Transport Policy in National Recovery Plans 5.5.2 Transport Funding and the EU Cohesion Policy 5.5.3 Transport, Mobility, and the Middle Income Trap 5.6 Conclusions and Policy Recommendations References Chapter 6 Monetary, Macroprudential, and Fiscal Policy 6.1 Introduction 6.2 Recovery and Progress after the Global Financial Crisis 6.2.1 Monetary Policy 6.2.1.1 Conventional and Unconventional Policy Tools Policy Rate and Corridor Liquidity Measures and Standing Facilities Unconventional Measures 6.2.1.2 Some Challenges and Puzzles Trilemma or Dilemma? Declining Neutral Rate and Policy Space Inflation Puzzle – Increasing Role of Global Factors? 6.2.2 Macroprudential Policy 6.2.2.1 Institutional Framework for Macroprudential Policy Making in the EEE 6.2.2.2 Macroprudential Tools Capital-based Measures Borrower-based Measures 6.2.3 Fiscal Policy 6.2.3.1 Fiscal Policy Framework 6.2.3.2 Fiscal Stance in the EEE 6.2.4 Overall Policy Mix: Cycle and Stance 6.3 Policy Response to the Covid-19 Crisis 6.3.1 Monetary Policy 6.3.2 Macroprudential Policy 6.3.3 Fiscal Policy 6.3.3.1 Fiscal Measures 6.3.3.2 Debt Developments 6.3.3.3 Contingent Liabilities 6.4 Long-term Prospects and Policy Implications 6.4.1 Monetary and Macroprudential Policy 6.4.1.1 Monetary Policy Framework and Tools 6.4.1.2 Macroprudential Policies 6.4.1.3 Functions and Independence of Central Banks 6.4.2 Fiscal Policy 6.4.3 Policy Interactions References Chapter 7 Green Economy: Energy, Environment, and Sustainability 7.1 Introduction 7.2 Background and Summary 7.2.1 The Great Reset: SDG as the Target 7.2.2 Data and Methods 7.3 Regional Assessment of Sustainable Development Goals 7.4 Impact of Covid-19: Resiliency and Sustainable Development Goals 7.4.1 Finance and Energy Transitions 7.4.2 Converging and Diverging Paths of Sustainability 7.4.2.1 Results 7.5 Policy Recommendations and Highlights 7.6 Conclusion 7.7 Annex References Chapter 8 Health and Social Security 8.1 Health Status, Healthcare, and Social Security, 2009-2019 8.1.1 Health Status and Demographic Structure Based on Composite Indicators 8.1.2 Size and Structure of Healthcare Expenditure and Structure of Health Services 8.1.2.1 Healthcare Financing 8.1.2.2 Healthcare Provision Structure 8.1.2.3 Performance of Healthcare Systems: Treatable Mortality 8.2 The Impact of the Covid-19 Shock 8.2.1 Direct Health Impacts 8.2.2 Vaccinations 8.2.3 Healthcare Responses 8.2.4 Indirect Impacts of Covid-19 on Health Status and Healthcare Use of People Aged 50+ 8.2.5 Impacts of Covid-19 on Social Security 8.3 Long-term Prospects and Conclusions References Chapter 9 Aging and Pension Systems 9.1 Introduction 9.2 Aging in the EU and the EEE 9.3 Pension Systems in the EEE, 1990–2019 9.3.1 Public Finance 9.3.2 Pensions 9.3.3 Pensions in the EEE 9.3.4 Country Specifics 9.4 Pre-Covid Forecasts 9.4.1 Pension Systems 9.4.2 Discussion of the Forecasts 9.5 The Impact of Covid-19 9.5.1 Introduction 9.5.2 Demographic Impact Case Study: Effect of the Covid-19 Mortality Shock on Pension Expenses in Hungary 9.5.3 Labor Market Impact Case Study: The Covid-19 Employment Shock and its Effect on Future Pensions in Hungary 9.5.4 Regulatory and Behavioral Impact 9.5.5 Impact on the EEE 9.5.6 Long-term Policy Considerations 9.6 Conclusions References Chapter 10 Public Education 10.1 Introduction 10.2 The Effectiveness of Public Education in the EEE before the Pandemic 10.3 Education Policy and Student Performance 10.4 The Covid Shock -– Countries’ Education Responses 10.5 The Preparedness of the EEE for Remote Teaching 10.6 Learning Losses due to the COVID Crisis 10.7 Conclusions and Policy Recommendations References Chapter 11 Research & Development and Higher Education 11.1 Introduction 11.2 The Global R&D and HE Environment: Trends, Developments, and Challenges 11.3 R&D in the EEE 11.3.1 R&D Expenditures 11.3.2 Human Resources for Science and Technology 11.3.3 Results of R&D Efforts 11.4 Innovation in the EEE Case study 11.5 Higher Education 11.5.1 Students and Educational Attainment 11.5.2 Public Spending on Tertiary Education 11.5.3 University Rankings 11.5.4 Country Profiles Case study 11.5.5 Higher Education in the Time of Covid-19 11.6 Long Term Prospects and Recommendations References Chapter 12 Inequality and Welfare 12.1 Introduction 12.2 Income Distribution before 2009: Literature Review 12.3 Changes in Income Inequality since the GFC 12.4 Development of Poverty Indicators since the Great Financial Crisis 12.5 Wealth Inequality 12.6 Inequality Effects of the Covid Crisis in the EEE 12.6.1 Potential Distributional Effects of Economic Crises in General, and of the Covid Crisis in Particular 12.6.2 Preliminary Results on the Distributional Effects of the Covid Crisis in the EEE 12.6.2.1 Immediate Effects of the Covid Crisis on Various Socio-economic Circumstances that Might Affect Inequality in the Medium term 12.6.2.2 Effects of the Covid Crisis on the Distribution of Labour Income 12.6.2.3 The Impact of the Distribution of Household Incomes: Market Income and Policy Effects 12.6.2.4 The Effect of the Covid Crisis on Subgroups of the Population 12.6.2.5 The Attitude Climate and Reactions to Policies 12.7 Conclusion References