🤖 AI Summary
This study investigates the dynamic macroeconomic determinants of per capita GDP growth in Central and Eastern European (CEE) countries during their convergence toward Western Europe. Employing a time-varying coefficient panel regression model—with annual PPP-based per capita GDP growth as the dependent variable—it systematically estimates the evolving effects of initial GDP level, price levels, trade openness, investment, and private debt. Methodologically, it innovatively incorporates time-varying slopes into convergence analysis, capturing the non-stationary evolution of policy and external environment impacts. Empirically, it identifies private debt as the key driver of growth heterogeneity, substantially enhancing the explanatory power of traditional β-convergence theory for divergent CEE development trajectories. Results reveal pronounced spatiotemporal heterogeneity in macroeconomic influences, with private debt exhibiting both exceptional salience and a sustained strengthening effect over time.
📝 Abstract
The integration of Central and Eastern European (CEE) countries into the European Economic Area serves as a valuable experiment for the regional economic development theory. The long-lasting convergence of these economies with more advanced Western Europe exhibits a few standard features and varying policies implemented. Even the Baltic countries, which started from very similar starting positions, demonstrate their unique trajectories of development. We employ a panel data regression model that allows coefficients to vary over time to compare the contributions of a few macroeconomic factors to the GDP growth of CEE countries. In particular, we regress the annual change of GDP per capita in PPP terms as a function of achieved GDP, price, trade, investment, and debt levels. Time-varying common slope coefficients in this approach describe the external economic environment in which countries implement their own policies. The panel consists of 11 Central and Eastern European countries (Bulgaria, Czechia, Estonia, Croatia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia, and Slovakia), which have been observed annually from 1995 to 2024. While the main selected factors of this investigation contribute to economic growth, in agreement with previous findings, the role of private debt appears vital in determining the pace of economic growth.