Munich Personal RePEc Archive Comparative analysis of economic transformation in Poland and selected central European countries Kowalski, Tadeusz Poznan University of Economics May 2009 Online at https://mpra.ub.uni-muenchen.de/16610/ MPRA Paper No. 16610, posted 09 Oct 2011 17:51 UTC Poznań-Atlanta Working Papers in Management, Finance and Economics No. 1 (8) Comparative Analysis of Economic Transformation in Poland and Selected Central European Countries by Tadeusz KOWALSKI May 009 MBA Pozna-Atlanta Working Papers No. 1 (8)/ 009 Editorial Committee: Tadeusz Kowalski, Steve Letza Henryk Mruk Anna Matysek-Jdrych, Secretary of the ditorial Committee Editing and layout: Anna Matysek-Jdrych Cover design: H&S * Copyright by MBA Poznan-Atlanta Program Pu lisher: MBA Pozna-Atlanta .niwersytet 0konomiczny w Poznaniu al. Niepodleg2o3ci 10 41-875 Pozna tel. 41 857 88 48 fa: 41 854 97 15 mba;ue.poznan.pl www.ue.poznan.pl/aemba ISSN: 1895-5779 Printing: Zak2ad Graficzny .niwersytetu 0konomicznego w Poznaniu MBA Pozna-Atlanta Working Papers No. 1 (8)/ 009 Tadeus$ %OWALSKI COMPARATI)E ANALYSIS OF ECONOMIC TRANSFORMATION IN POLAND AND - SELECTED CENTRAL E,ROPEAN COUNTRIES A stract The aim of this study is an empirical evaluation and comparison of Poland’s economic transformation in 1989-2008 against the background of the re- sults achieved in the same period by Hungary, the Czech .epublic, the Slo- vak .epublic, Lithuania, and the /kraine. 1 have focused on the most dis- tinctive features of economic transformation. The background for the empir- ical analyses constituted the macroeconomic stabilization frameworks of the economies, the standard growth mechanisms and the conditions of the economies’ competitiveness. %ey.ords: convergence, divergence, transformation, competitiveness, transi- tion economies /EL codes: 045, O14, O77, O57, P5 * Translation: M. Azikowska. The author would like to thank M. Azikowska and A. WoBcie- chowska-Cefermat for their research assistance and editing work. 8 MBA Pozna-Atlanta Working Papers No. 1 (8)/ 009 1. Introduction The year 009 marks the 0th anniversary of the 1989 Cound Table Talks and first, semi-free parliamentary election in Poland. As a result of those changes and in particular the Civic CommitteeDs election victory, Poland was the first Central 0uropean country to start e:tensive institutional and economic reforms. The main aim of those reforms primarily was to provide macroeconomic stabilization and to re-establish a free market economy based on the private ownership. 0valuations of PolandDs economic transformation and its economic and social conseEuences are still controversial and disputable issues. This is mainly because the process, which was strongly determined by the initial economic situation, and the solutions applied in a relatively short period during the initial stage in terms of economic policy and its participantsD e:- pectations, lead to structural shifts and changes in the material and social situation noticeable to all citizens with no e:ceptions. Those impartial and inevitable circumstances were accompanied by deep changes within means of public communications bound up with the end of the monopoly of infor- mation and censorship. Fuickly, goods, services, labor, and capital markets were established, and a characteristic and often chaotic idea concerning the new markets as well as an arena of rivalry for various political parties and organizations followed. .neEuivocal disputes concerning PolandDs transformation, its effec- tiveness and seEuence, the use of economic policy tools, and most of all, the scale of public costs concerning constitutional changes of the economy, were simply impossible to settle. Therefore, to make an obBective evaluation of the last twenty years, it is worthwhile to make an attempt to compare and describe PolandDs transformation against the background of similar processes in other Central 0uropean Countries. The selection of countries for this comparison is not difficult. First of all, this will be Hungary, which is a country that had been reforming and transforming its economy since the end of 40s. The analysis and e:amination of Hungary allows us to compare results of gradual reforms with the results of the radical alternative of the Euick pro-market adBustment and adaptation used in the case of Poland1. A comparison with Czechoslovakia , which is a country with considerably 7 MBA Pozna-Atlanta Working Papers No. 1 (8)/ 009 higher economic development and a relatively good initial macroeconomic situation, where the reforms were introduced one year later than in Poland, should allow the evaluation of the conditions and the significance of initial structural differences and the specific premium resulting from the possibility of watching Polish pioneer e:periences during the first months of transfor- mation. Ne:t to Hungary, the Czech Cepublic and the Slovak Cepublic, the paper takes into consideration Lithuania and the .kraine. The reason for this choice was the considerably high structural similarity between both these countries and Poland (i.e. the high significance of agriculture to the economy, and the fact that the GAP level in the year 1990 in the .kraine was the same as in Poland and higher in Lithuania). Moreover, taking into account Lithuania and the .kraine, as post-soviet economies, should allow us to grasp the significance of the institutional setup as well as the devasta- tion related to the institutional and cultural sphere of business resulting from the economic and political system imposed in these countries. Incorpo- ration of these countries into the analysis allows the verification of whether these economies took advantage of a delay premium, since they had started their political emancipation process in August 1991 (the .kraine) and in September 1991 (Lithuania8). As a result, Lithuania and the .kraine had an opportunity to start their full market transformation as independent countries and to base their actions on the e:periences of Hungary and Pol- and. The aim of this study is an empirical evaluation and comparison of PolandDs economic transformation against the background of the results achieved in the same period by Hungary, the Czech Cepublic, the Slovak Cepublic, Lithuania, and the .kraine. The limited scope of the paper re- Euired focusing on selected economic aspects of the transformation. The background for the empirical analyses constituted the macroeconomic stabi- lization frameworks of the economies, the growth mechanisms and the con- ditionings of their competitiveness. The structure of the article is the following: The first section presents briefly the theoretical background of transformation. The transformation process is divided into two phases: the phase of stabilization and implemen- tation of fundamental institutional changes, and the phase of growth and 5 MBA Pozna-Atlanta Working Papers No. 1 (8)/ 009 development. SubseEuently, the paper presents the general framework of those phases, with special attention paid to macroeconomic conte:t, the institutional setup, and the competitiveness determinants of the economies. The conceptual framework of the conventional production function and the methodology derived from Global Competitiveness Ceport complement one another. In this way, they create a conte:t for international comparison of the operation of factors stimulating and inhibiting the transition process. Successive sections present an empirical comparative analysis of the trans- formation process. Therefore, the second section discusses the initial condi- tions of the transition in Poland and other countries under e:amination. Special attention is paid to structural and macroeconomic conditions on the threshold of transformation. The paper singles out and describes the main features of stabilization programs and the first responses of the economies to new impulses of the economic policy and the new institutional conditions. The third section is devoted to the analysis of selected growth factors and their limitations. It attempts to identify the reasons for differentiation be- tween transition processes and their present results in the e:amined coun- tries7. Special focus is paid to the identification of the source of these phe- nomena. The fourth section focuses on general outcomes of transformation in terms of GAP per capita and competiveness of the analyzed economies. The analysis is concluded with final remarks. 1. Theoretical conte2t of the comparative analysis of the transformation 0valuation of the transition process of the years 1989- 008 and its econom- ic conseEuences reEuires a coherent theoretical and methodological conte:t. For this reason, in the paper, the transformation process is divided into two phases: - A phase of stabilization and implementation of fundamental institu- tional changesI and, - A phase of development and modification of solutions applied in the initial period of the transition, accordingly to the specific needs and challenges of a particular country. 4 MBA Pozna-Atlanta Working Papers No. 1 (8)/ 009 It has been recognized that, in the first phase of transition, the initial ma- croeconomic conditions were of crucial importance, followed by the struc- tural features of a particular economy, including therein the availability of resources and the structure of GAP creation. The phase can be investigated both in the conte:t of macroeconomic analysis and in the conte:t of micro- economic adBustments of companies and households to the new economic environment5. An important analytical