Is Income Convergence Possible with a Diminishing Industry’s Output? Development Gap and Structural Changes in Montenegro Since the World War II (original) (raw)
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Toward a New Growth Model of the Montenegrin Economy
In the new world of the Washington consensus, small countries have been advised, encouraged, and, not rarely, pushed into the growth model in which direct foreign investments (DFIs) are regarded as a sole or at least the main engine of growth. All South East European countries are small and all of them have accepted this view on growth and development. Being the smallest among them, Montenegro can serve as the best possible example for the research of characteristics and consequences of this kind of the growth model. This research revealed that the Montenegrin growth had indeed been driven solely by the movement of DFI. The period from 2001 to the end of 2008 was the period of permanent increase in GDP induced solely by DFI. Not only the growth rate, but the whole macroeconomic position of Montenegro was determined by this variable. In fact, the Montenegrin economy is so addicted to DFI that, without it, it is not possible to keep even the basic macroeconomic stability in our economy. In contrast to the development of the foreign economic structure, our own economy has stagnated if not declined. A part of the economic structure has been destructed and fragmented as a result of an inappropriate model of privatization and corruption based on it. On the other hand, the small, imperfect, and shallow market was not able to generate further growth of domestic economy. Firstly, our market is not able to generate new business ideas and in this way increase absorption capacity on the side of investment. Secondly, our market is not able to coordinate some very important complementary industries, like agriculture and food industry, electricity and aluminum production, construction industry and skill formation for construction industry, and so on. Finally, we have a peculiar relationship between the labor market demand and the demand for educational services, which can produce a lot of other economic problems. We definitely need a new growth model, the one which is able to attract greenfield and hi-tech foreign investment, on the one hand, and the one that is able to generate development of our own export-oriented and import substitution-oriented economy, where reasonable, on the other hand. Needles to say, development of own economy is the main part of this new growth model. Even more importantly, it assumes an active industrial policy of the state. Firstly, this policy should be oriented to building the architecture of knowledge which is able to increase generation of business ideas. This architecture is made of universities, R&D in larger companies, incubators, clusters, business centers, and similar. Secondly, the financial system should be completed in order to help realization of business ideas developed in that way. Thirdly, coordination of complementary activities, where not done properly by the market, should also be supported by the government.
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Acta Oeconomica, 2020
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The present research aimed to provide an extensive comparative analysis regarding the socioeconomic development paths of three selected Balkan countries—Bulgaria, Croatia and Romania—as well as Hungary, which was originally classified as a member of the Visegrad Four group in Central and Eastern Europe. In our paper, the Balkan states were analyzed along with Hungary, as it might be observed that since the 2008–2009 economic crisis, the latter’s economy has been increasingly diverging from that of the Visegrad club in several aspects. After having undergone a protracted transition crisis escalated by the collapse of the Soviet Union, the micro-region has exhibited a truly contradictious development trajectory including periods of relatively faster economic-growth-based catching up and significant fallback stages driven by numerous endogenous or exogenous shocks. The study assumed that the region’s most crucial vulnerability is the relatively high dependence on Foreign Direct Investment that contributes to the fluctuating nature of economic growth, and also, it might be viewed as an obstacle to long-term sustainable development. In the frames of the research, the authors present an alternative comparative method for specifying the actual level of economic development of the defined country group from economic, political and social perspectives, relying on the most recent data published by international organizations, NGOs and thinktanks. As a result, an aggregate ranking was established for the four countries based on 21 individual indices, taking into consideration their dependent market economy attributes and, also, unique patterns of economic growth. Furthermore, the study also provides a dynamic evaluation of the trends concerning the narrow approach of using ten indices for a protracted period, investigating whether Hungary has been converging, diverging or stagnating with respect to the three Visegrad and Balkan economies. To what extent are Bulgaria, Croatia, Hungary and Romania still affected by the historical burden of the former regime, and what perspectives might they have for realizing convergence in the near future to the more developed economies?
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In this paper, we use the concept of convergence based on the stationarity of crosscountry per capita output differences and propose new on the persistence and change of persistence of data, taking into consideration the occurrence of structural changes. We consider data on per capita output of the European Union member states, considering the Western European economies and the Eastern European economies in a total of 23 countries. Our objective is to analyze the convergence process of these economies and, in particular to conclude whether there has been a convergence and/or divergent process between the Western European economies and between those economies and the Eastern European economies over the sample period. By considering different sub-periods, the results suggest that in general the Western European countries have reduced their per capita output gaps, being Ireland the only country reporting divergence until the end of the 80s. Bulgaria, Hungary, Poland and Romania have reported divergence to Western European countries over the period from the 50s to the 90s. Finally, per capita output gaps of other Eastern economies have been reduced since the 1990s, in particular the cases of Latvia and Lithuania.
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The implications of neoclassical model in growth theory are still dominant. One of the implications is convergence hypothesis which means that in the long run income per capita will converge in the steady state level. With regards it is suggesting a natural methodology for finding support of convergence hypothesis. Different researches found the speed of convergence for different “convergence club” countries and regions around the world. Regarded to this it is suggested” convergence club” countries for Albania which is composed by Central, Eastern Europe (CEE) and Western Balkans countries because of same similar characteristics. The observed period for this study is 2000-2010 and the explanatory variable is GNI per capita. In this study, after testing the convergence hypothesis in cross-sectional data set through regression analyses, it is estimated the speed of convergence around 2% per year between this “convergence club” country.
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IMF Departmental Papers, 2019
In the past 25 years, exports have contributed strongly to growth and economic convergence in many small open economies. However, the Western Balkan (WB) region, consisting of small emerging market economies, has not fully availed itself of this driver of growth and convergence. A lack of openness, reliance on low value products, and weak competitiveness largely explain the insignificant role of trade and exports in the region’s economic performance. This paper focuses on how the countries in the WB could lift exports through stronger integration with global value chains (GVCs) and broadening of services exports. The experience of countries that joined the European Union in or after 2004 shows that participation in GVCs can help small economies accelerate export and income growth. WB countries are not well integrated into Europe’s vibrant GVCs. Trade within the region is also limited—it tends to be bilateral and not cluster-like. Our analysis shows that by improving infrastructure a...