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Structural Change, Inequality and Economic Growth: Evidence from a Panel of Central and Eastern European Countries

Core-Periphery Patterns Across the European Union

ISBN: 978-1-78714-496-5, eISBN: 978-1-78714-495-8

Publication date: 11 August 2017

Abstract

European Union (EU) central and eastern economies have gone through a process of structural change since 1989, when the post-communist transition started. This process was afterwards reinforced by the three EU enlargement waves that took place in 2004, 2007 and 2013. Though exhibiting low levels of aggregate productivity, this group of countries joined the EU with higher levels of human capital than the southern member states, an advantage that should have accelerated real convergence towards the EU15. However, evidence to date suggests that the convergence process came to a halt in 2007–2008 when massive capital inflows stopped, highlighting the fragilities of the growth strategies implemented so far. In these peripheral countries, structural change has been characterised by an expanding services sector alongside growing income inequality. The two strands of literature on these issues highlight that: (a) an expanding services sector may not be detrimental for growth, quite the opposite, depending on services composition and on the capacity of services sub-sectors to incorporate information and communication technologies (ICTs); and (b) inequality is negatively related to growth through the fiscal policy, socio-political instability, borrowing constraints to investment in education and endogenous fertility channels and positively through the savings channel and incentives. We analyse the nexus between structural change, inequality and growth in this group of countries highlighting income inequality as a potential mechanism that connects the other two variables. We provide a descriptive quantitative analysis of the profiles of structural change and income inequality in our sample and apply dynamic panel methods to investigate the existence of causality among services sector expansion, inequality and aggregate productivity considering a maximum period between 1980 and 2010.

Keywords

Citation

da Silva Duarte, M.A.P. and Simões, M.C.N. (2017), "Structural Change, Inequality and Economic Growth: Evidence from a Panel of Central and Eastern European Countries", Pascariu, G.C. and Duarte, M.A.P.D.S. (Ed.) Core-Periphery Patterns Across the European Union, Emerald Publishing Limited, Bingley, pp. 143-173. https://doi.org/10.1108/978-1-78714-495-820171005

Publisher

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Emerald Publishing Limited

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