CEPR Discussion Paper No.3744 - 'Regional Policies and EU Enlargement'
Authors: Michele Boldrin (University of Minnesota and CEPR) and Fabio Canova (University of Pompeu, Barcelona and CEPR)
February 2003
The European Union is moving towards the sixth enlargement of its history. Candidates to enter the EU are ten mainly Eastern European countries that were ruled by socialist regimes until about 1990 - Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the Slovak Republic and Slovenia, the CEEC10. Taking both the enlargement process, as currently defined by the EU, and the structural funds as a given, CEPR Discussion Paper No.3744, examines what is the best way for candidate countries to achieve real convergence. Or put differently, assuming that the admission process for these countries to join the EU is completed. What changes, if any, in the principles and methodologies underlying current EU structural policies should be recommended to foster fast and steady growth among new members, at both the national and regional levels? What role should national and supranational policies play in the process? The authors’ attention focuses on the twin issues of economic growth and convergence for the CEEC10 after joining the EU.
This study quantifies the extent to which enlargement countries are economically backward with respect to the current 15 EU member states. The authors document the evolution of the main macroeconomic indicators since the transition from socialism began. They find that, the average CEEC10 country is still where it was ten years ago relative to the average EU member country. Different measures of heterogeneity across CEEC10 countries measured either in levels or rates of change, is probably more substantial than within each country. However, when the CEEC10 are compared with the poorer Mediterranean countries of the EU, there are many similarities both in terms of snapshot conditions in 2000 and in terms of their economies evolution since then. Bodrin and Canova come to the conclusion that if the experience of earlier EU enlargements and current economic conditions within the CEEC10 are any guide, too high expectations for enlargement to spur convergence between candidate countries and current members are likely to be misplaced.
Bodrin and Canova argue that regional transfers taking place under the structural and cohesion policies are unlikely to act as growth engines for the CEEC10. Structural and cohesion policies may increase income in the receiving countries by an amount equal to the one transferred, but this Paper finds no evidence that they will have an impact on long-run growth rates. Instead, the authors of CEPR Discussion Paper No.3744 believe that to achieve long-run growth at rates higher than average an appropriate mix of European and national policies is needed. This includes further fostering of trade integration within the EU, restructuring public spending, creation of supply side incentives by proper reforms of fiscal and social insurance policies, free movement of capital and labour, together with a competitive level of labour income taxation. Based on historical experience two types of policies appear to be particularly relevant. First, public programs for long-term income support, corporate subsidies and other forms of income transfer have negative effect on economic growth – Boldrin and Canova say they should be terminated as soon as possible - second, labour and capital mobility are good for growth and economic convergence. In particular, the adoption or continuation of various transfer and/or regulation policies aimed at eliminating labour migration from the CEEC10 is wrong and damaging. Skilful politicians have magnified the fear of migration: migrations in past enlargements have been small; Boldrin and Canova see no reason for them to be large in the future.
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