Growth and Real Exchange Rate Appreciation in the CEECs: Some reflections on the catching up process

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1 Growth and Real Exchange Rate Appreciation in the CEECs: Some reflections on the catching up process FIRST DRAFT Comments welcome Lars Nilsson a a Ministry for Foreign Affairs, Department for European Affairs, SE Stockholm, Sweden lars-l.nilsson@foreign.ministry.se, Tel. +46 (8) , Fax +46 (8) Abstract This paper examines the income divide between the applicant countries of Central and Eastern Europe (CEECs) and the EU member states, and analyses the prospects of the CEECs catching up to the average income level of the EU countries. The results show that previous purchasing power parity (PPP) adjusted per capita income estimates in the CEECs have led to an underestimation of the time needed to catch up. On the other hand, the results also show that an appreciation of the CEECs real exchange rates have had a significant impact on their level of income measured at exchange rates. This in turn points to higher future contributions to the EU s budget. The financial burden of enlargement may therefore be lower than previously thought. Keywords: Candidate Countries, Catch up, Eastern Europe, Enlargement, European Union The opinions expressed in this article are entirely the author's own and do not necessarily reflect any views of the Swedish Government. Helpful comments from Kristian Nilsson are gratefully acknowledged.

2 1. Introduction In December 1997, the Luxembourg European Council took the decisions necessary to launch the overall enlargement process, and on March , accession negotiations began with the Czech Republic, Estonia, Hungary, Poland, and Slovenia (CEEC-5) and Cyprus. The formal opening of the negotiations was accompanied by ceremonious speeches by the parties involved, expressing the historical significance of the event taking place. During the fall of 1998, however, somewhat different signals started to emerge from the EU member states indicating that the initial enthusiasm for the EU's enlargement was gradually being reduced. The newly elected German government expressed that the enlargement of the European Union must be considered with more "realism" and that the financial costs of enlargement must be analyzed in more detail, and the French government have on several occasions denied that France has lost interest in the enlargement process. 1 In November 1998, the European Commission submitted reports about the progress made by the candidate countries in central and Eastern Europe (CEECs) and Cyprus the past year, and noted that important and substantial progress had been made in several countries. However, the Vienna European Council decided not to start negotiations with additional candidate countries. Several EU countries indicated that the conclusions of the negotiations of Agenda 2000 had to be given top priority. The proposals in the Agenda 2000 concern reform of the EU's budget and the structural and agricultural policies, and imply that the EU countries are to lose funding from the union in light of enlargement, something which may have contributed to a more cautious attitude towards enlargement. The purpose of this paper is to analyze the income gap between the CEECs and the EU, the time it may take to bridge it, and to give an indication of how the CEEC's contribution to the EU's budget will be affected as they catch up. The EU member states contributions to the union s budget are to a large extent based on their national income (measured at current exchange rates). In this context, the role of real exchange rate appreciation is an issue that seems to have been overlooked. In case of appreciating real exchange rates of the candidate countries' currencies vis-à-vis the Euro, 2 the time needed to catch up would be reduced, 1 See for example the speech given by Mr. Pierre Moscovici, France s minister for European Affairs, at the College of Europe in Poland on February The term Euro is used in the text also in cases where European Currency Unit (ECU) would be the appropriate wording. 2

3 indicating, ceteris paribus, that the CEECs contributions to the EU s budget may be larger, and enlargement less of a burden financially, than previously thought. Section 2 discusses levels and growth of per capita income in the CEECs, and highlights the role of the real exchange rate in this context. Section 3 introduces the concept of the real exchange rate and shows the impact changes in the real exchange rate have had on the level of per capita income. Section 4 updates previous projections on the rate of growth and the number of years needed to catch up, while section 5 analyzes the effect a catch up may have on the CEECs' contribution to the EU's budget. Section 6 summarizes the main findings and makes some concluding remarks. 2. Per capita income in the CEECs After the fall of the Communist regimes in central and Eastern Europe, it was realized that the political changes had given Europe one of world's deepest economic dividing lines between neighboring countries. Early in the transition period, the difference in per capita income between the EU and the CEECs was fivefold measured at current exchange rates and threefold in purchasing power parity (PPP) terms. The scope of this dividing line, and the time it may take to bridge it received attention following the submission of these countries' applications for EU membership in the mid-1990s. One of the reasons being that the distribution of means from the union s structural and cohesion funds depends on a member state s level of per capita income in relation to the union s average Per capita income in constant prices Appendix Table 1 presents the level and growth of per capita income in the CEECs. Column 1 presents the CEECs' per capita income in Columns 2-4 show the CEECs' yearly rates of real economic growth over the period. 3 Column 5 displays the accumulated level of per capita income in the CEECs in 1997 (in 1994 prices), obtained by multiplying each candidate country s level of per capita income in column 1 by respective country s following yearly rate of growth. As can be seen, economic growth in the CEECs has been substantial in many cases. Most striking are the constant high rates of economic growth in, especially, Estonia, Poland and Slovakia. Per capita income in these three countries have increased by more than 20 percent over the period (see column 6). Also in the Czech Republic, Lithuania and Slovenia 3 The data is obtained from the statistical annexes of the European Commission (1998b). 3

4 have growth rates been high, per capita income increased by more than 10 percent over the period, but in the Czech Republic the rate of growth slowed down towards the end of the period. Hungary and Latvia have both shown increasing rates of growth since 1994, and come close to achieving a growth rate of 10 percent over the period. Bulgaria and Romania have performed worse and display negative growth rates towards the end of the period. Still Romania's per capita income has expanded with some 4 percent over the period, while per capita income in Bulgaria has decreased over the same period of time. The figures are reflected in the rates of average annual growth (see column 7), with Estonia, Poland and Slovakia showing annual average rates of growth of more than 6 percent PPP adjusted per capita income Relative prices on goods and services not traded internationally tend to vary substantially from one country to another. This leads to large variations in the relative purchasing power of currencies and thus in welfare as measured by GNP per capita. Per capita income estimates in purchasing power have been converted into Euros using PPPs instead of exchange rates as conversion factors. Using PPPs instead of exchange rates correct for the variations in the relative purchasing power between countries currencies, and may therefore provide a better comparison of the standard of living between countries. The PPPs are calculated as the ratios of prices for goods and services between countries covering all categories of the final expenditure on gross domestic product GDP. 4 Until January 1st, 1999, the candidate countries, except for Poland and Cyprus, did not take part in the same price comparison group as the EU member states. From 1999 and onwards, all candidate countries and EU countries will be part of the same scheme. Price surveys are conducted over a 3 years rotating cycle within the EU member states. Fully comparable price surveys between the EU and the candidate countries will thus not be available until the price comparison in 2001 has been completed. PPP adjusted per capita income estimates should be interpreted with caution. Not all items can be perfectly matched in quality across countries and over time, and especially prices on services are difficult to compare between countries, partly due to differences in productivity. 5 4 For more information on the methodology used to obtain the PPPs, see e.g. United Nations Statistical Commission and Economic Commission for Europe (1993) and World Bank (1993). 5 The PPP basket of a given survey will be revised for each round of successive surveys, to take into account the developments in the markets (some products disappear, some come) and experience gained when doing the past survey. Furthermore, the baskets of goods in the EU countries group and in the other group have traditionally been somewhat different. The EU group of countries has relied more on branded items and the group of countries 4

5 Column 16 and 17 of Appendix Table 1 display PPP adjusted per capita income estimates in the CEECs in 1994 and As can be seen, with some variations between the countries, the PPP adjusted per capita income estimates are substantially higher than corresponding estimates converted into Euros using exchange rates. For example, Romania's per capita income in Euros at current exchange rate makes out only some 20 percent of the PPP converted estimate. On the other hand, in the case of Slovenia, per capita income converted at current exchange rate reach close to 60 percent of the PPP estimate. 3. The real exchange rate, PPP and changes in per capita income The real exchange rate (RER) can be defined as E E * P EU = n, PCEEC where E equals the real exchange rate, E n is the nominal exchange rate expressed in units of national currencies in terms of Euro, and P EU and P CEEC are the price levels in the EU and a CEEC, respectively, defined as the domestic purchase price of a well-defined basket of commodities. The RER is thus the relative cost of the common reference basket of goods, where the basket's costs in the EU and the CEEC are compared after conversion into Euro. The theory of PPP predicts that the price ratio P EU over P CEEC, measured in a common numeraire should equal 1, or at least return to 1 when that long-run ratio is disturbed for some reason. 6 A CEEC experiences a real appreciation of its currency vis-à-vis the Euro, and the EU a real depreciation of the Euro, if the price ratio P EU over P CEEC multiplied by the nominal exchange rate decreases. Accounting for changes in the real exchange rate, column 8 of Appendix Table 1 displays figures on the per capita incomes in the CEECs in 1997 expressed in Euro in 1994 prices. 7 Column 10 shows the increase in percentage terms. One notes that per capita income in Estonia and Lithuania increased by more than 100 percent over the period, and that growth in per capita income amounted to more than 30 percent in the Czech Republic, Poland, Latvia that the CEECs belong to has relied more on generic items. See also United Nations Statistical Commission and Economic Commission for Europe (1993) and World Bank (1993) for more information. 6 This is often denoted as the absolute version of the PPP. A weaker version of the PPP (relative version) states that changes in national price levels are always equal, or tend to be equal, over a sufficiently long period of time. 5

6 and Slovakia. In Slovenia and Romania, per capita income increased by some 20 percent between 1994 and 1997, while per capita income in Hungary and Bulgaria increased by only some 6 and 2 percent, respectively Changes in per capita income The development of the real exchange rate in the CEECs vis-à-vis the Euro has implications for the development of per capita income in the CEECs. This is seen in the Commission's figures on per capita income in the candidate countries in 1997 expressed in Euros (column 8), which are higher than the figures on accumulated per capita income in column 5. 9 It holds true for all candidate countries, except for Hungary. 10 The reason for the discrepancy between the per capita income estimates in columns 5 and 8 is that the price of the representative basket of goods in the CEECs in terms of the Euro has increased at a faster rate compared to the EU. Meanwhile, the CEECs' exchange rates have not depreciated to the same extent in order to offset the higher rate of inflation. The PPP adjusted per capita income estimates in columns 16 and 17 of Appendix Table 1 are extrapolations made by the Commission based on the results of the 1996 price comparison program. The per capita income estimates are updated by multiplying by constant growth rates and adjusting for the reference group s (EU s) inflation rate. 11 The extrapolations thus take into account for changes in the level of price between the EU and the CEECs, but it does not consider potential changes in the nominal exchange rate. The appreciation of the real exchange rates in the CEECs, as noted above, has come about partly as a result of the nominal exchange rates not having depreciated sufficiently to offset the higher rate of inflation in the CEECs. If the nominal exchange rate depreciates in the CEECs, the increase in P CEEC will be lower in Euro terms than expressed in national currency. In this sense, the extrapolations of the PPP adjusted per capita estimates in the CEECs are underestimated. 7 The data is obtained from the statistical annexes of the European Commission (1998b). 8 The increase in absolute Euros is given in column 9. 9 The figures on accumulated per capita income were calculated using the Commission's estimates of per capita income in the candidate countries in 1994 multiplied by the following yearly rates of real economic growth in respective country. 10 The statistics on Hungary, however, seem to be unreliable. The development of the real exchange rate in Hungary using national price deflators such as the consumer price index of the implicit GDP deflator does not yield the same result. 11 The result will be the same if, instead, the PPPs (the conversion factors) are extrapolated by the relative rates of inflation in the EU and the CEECs, and then used to convert current price national currency estimates of per capita income. 6

7 4. Catch up based on PPP adjusted per capita income A large part of the income differential between the EU and the CEECs can be attributed to the low standard of eastern capital stocks and technology. Since the general level of education is high, installing new machines and adapting to new technology are relatively simple for the CEECs, which facilitates the catch up process. Other important factors for bridging the income gap are the existence of e.g. a well-functioning administrative capacity and the implementation of, and adaptation to commercial law. The presence of the second set of factors varies considerably among the CEECs. They are therefore likely to exhibit different rates of economic growth. Rapid investments in physical and knowledge capital have led many observers to believe that growth rates in the CEECs will be two or three times those in Western Europe. 12 Still, based on the differences in growth rates it will take decades for the CEECs to reach the average level of EU per capita income. Baldwin (1994) used the PPP adjusted per capita income levels, as of 1989, in the candidate countries and analyzed the rate of growth that would be needed to catch up to the average level of income in the EU in the year He found that Bulgaria, Romania and Poland would need to grow at the rate of 3.3 percent, 5.8 percent and 4.4 percent per year in order to reach the average per capita income of Greece, Ireland and Portugal in The remaining CEECs would need to grow at rates between 3 percent (Slovenia) and 5 percent (Lithuania) to catch up to the income level of Spain the same year. 13 Gros and Gonciarz (1996) later showed that Baldwin's (1994) figures on per capita income in the CEECs were overstated. In order to catch up to the year 2010, growth rates in the CEECs will therefore need to be higher than what Baldwin (1994) concluded. Table 1 presents the rate of growth needed to catch up in 2010 based on recent PPP adjusted per capita income estimates in the CEECs. As can be seen, the rate of growth needed for the CEECs to catch up to the average level of per capita income in Greece, Ireland and Portugal, Spain and Austria, respectively, is substantially higher than Baldwin's (1994) estimates. Extending the catch up period to 2020 does not change the result; with the exception for Romania and Slovakia, the growth rates needed are still higher than those Baldwin (1994) predicted for catch up in Baldwin et. al. (1997), p Slovenia catches up to Austria. Baldwin (1994) also includes additional countries from central and Eastern Europe and the former Soviet Union in his study. 14 The results may be obtained from the author. 7

8 In its proposal for the EU s next financial framework ( ), the European Commission (1997) uses the assumption that growth in the CEECs and the EU equals 4 percent and 2.5 percent, respectively. Based on the Commission s assumption, column 3 of Table 1 presents the number of years it will take the CEECs to catch up to the average level of PPP adjusted per capita income in the EU. The Czech Republic and Slovenia need in round figure 30 years to catch up, while Estonia, Hungary, Poland and Slovakia need years. Bulgaria, Latvia, Lithuania and Romania need years to catch up. If the growth rates in the CEECs and the EU are assumed to be the average rate of growth during the period (see Appendix Table 1, column 7), the difference in catch up time is by and large the same for the Czech Republic and Slovenia, having grown on average somewhat less than 4 percent. Estonia, Poland, Lithuania and Slovakia, however, having grown at a substantially higher rate than the assumed 4 percent, need much less time to catch up. The reverse holds for the remaining CEECs. Assuming instead that the CEECs will keep the average growth rate of only the two latest years for which figures are available ( ), catch up time will be by and large the same (as in the case of growth rates based on the average between ) for Estonia, Poland, Slovenia, Lithuania and Slovakia, less for Hungary and Latvia and increased for the Czech Republic. Bulgaria and Romania still would not catch up (see column 5). The volume of means a member state can receive from the EU s structural and cohesion funds are based on PPP adjusted GDP. If a region s PPP adjusted per capita income is below 75 percent of the union s average, a member state may receive support from the union s structural funds (objective 1). About two-thirds of the total volume of structural funds will be allocated to objective In case of the cohesion fund, the level is 90 percent for the country as a whole. With the Commission's assumption of growth rates, both the Czech Republic and Slovenia reach the threshold level (of 75 percent of average per capita income) for receiving support from the EU's structural funds in 6 and 11 years, respectively (see figures in parentheses) This indicates a limit in time on the flow of means from the EU s structural funds to the CEECs. The distribution of financial support from the EU s funds will be determined in the accession negotiations, and depends, e.g., on the nature of the division 15 The actual figure is 69.7 percent according to paragraph 30 of the Presidency's conclusions from the Berlin European Council, March

9 into regions of the applicant country. The amount that each candidate country is going to receive from the EU's funds can therefore not be determined at this stage One should bear in mind that structural support will be granted to poor regions of a member state even though the country as a whole may have a per capita income above 75 percent of the union s average, but that a member state may not be entitled to more financial aid from the structural funds than 4 percent of its GNP. 9

10 Table 1: Growth and time needed to catch up (percent and years). Catch up in 2010 Catch up - number of years needed Column Growth rates needed* Growth: Growth: Growth: Commission s assumptions a Average between b, c Average between b (1) (2) (3) (4) (5) Czech R. 5.4 (3.3) 31 (11) 32 (12) 222 (81) Estonia 9.8 (4.7) 68 (49) 24 (17) 19 (14) Hungary 7.8 (4.8) 52 (32) 702 (434) 127 (78) Poland 7.3 (4.4) 64 (44) 22 (15) 23 (16) Slovenia 6.2 (3.0) 26 (6) 28 (6) 32 (7) Bulgaria 11.8 (3.3) 100 (80) - - Latvia 12.6 (4.3) 90 (70) 199 (155) 51 (40) Lithuania 11.4 (5.0) 81 (61) 36 (27) 41 (31) Romania 9.4 (5.8) 81 (61) - - Slovakia 7.8 (4.1) 52 (32) 18 (11) 18 (11) Note: * Bulgaria, Poland and Romania catch up to the average per capita income of Greece, Ireland and Portugal. Slovenia catches up to Austria, and the remaining CEECs catch up to the income level of Spain. Baldwin's (1994) figures are given in parentheses in column 2. The numbers of years needed to catch up to 75 percent of the average per capita income in EU are in parentheses in columns 3-5. a Growth rates in the CEECs and the EU are assumed to be 4 percent and 2.5 percent, respectively. b The average growth of the EU during the period equals 2.3 percent (European Commission (1998c)). c See Appendix Table 1, column 7 for growth rates in the CEECs. Source: Own calculations. 5. The real exchange rate and the CEECs' contribution to the EU's budget As the CEECs grow richer, they will receive less money from the EU's funds and contribute more to the EU's budget. Without pre-judging any other candidate country, assume for simplicity that the negotiating CEEC-5 also accede to the Union during the first round of enlargement. The CEEC-5 use the year 2003 as working hypothesis for date of accession, except for Hungary who uses The Commission has used 2002 as a technical working hypothesis in the calculations of a new financial framework for the period. The actual date of accession can of course not be predicted for reasons such as the progress made by the candidate countries in the reform process, and the results of the negotiation process etc. Based on the assumption of growth rates of 4 percent and 2.5 percent in the CEECs and the EU, respectively, the Commission has presented estimates on the level of GDP in the 10

11 CEECs as EU members in Column 2 of Table 2 shows the estimated figures on the GDPs in the CEEC-5 in 2002 under this assumption. 18 The total GDP of the new member states amounts to some 285 billion Euro in 1999 prices. The Commission has however not considered potential changes in the CEECs real exchange rates carrying out its calculation. As can be seen in the average level of growth including exchange rate effects (see Appendix Table 1, column 11), changes in the real exchange rate have had a large impact on the income levels in the CEECs. Column 3 displays estimates on the level of GDP in the CEECs in 2002, assuming that the average growth rate over the period, including the effects of appreciating real exchange rates (Appendix Table 1, column 11), will prevail also until that year. In this case, the estimated income levels in the CEEC-5 are higher in all countries, except for Hungary. The total GDP of the CEEC-5 amounts to some 380 billion Euro, an increase of about 35 percent compared to the Commission's estimate. Table 2 also displays estimates on the CEEC-5' contributions to the EU's budget. According to the Commission's calculations, member states contribute about 1.2 percent of their GDP to the EU's budget. Analogous to the increase in total GDP in the CEECs in case of growth rates including exchange rate effects, the contribution from the CEEC-5 to the EU's budget will also be 35 percent higher than previously thought, should their currencies continue to appreciate until 2002 at the same rate as between 1994 and As part of the Copenhagen criteria, the CEECs have to adhere to aims of the economic and monetary union (EMU), and several CEECs have indicated that they hope to become members of the EMU as soon as possible after accession. It could therefore be reasonable to assume that, by the date of accession, the inflation rates in the CEECs will be, on the whole, in line with the EU's. As growth rates are likely to convergence, the appreciation of the real exchange rates in many CEECs may be expected to eventually to slow down i.e. in order not to erode competitiveness. Assume therefore that the appreciation of the CEECs' currencies gradually will decrease until the year 2002, the date used by the Commission as a technical working hypothesis for accession. In that case, the level of income in the CEEC-5 will equal 311 billion Euro which gives a 9 percent higher contribution to the EU's budget (see column 4). Table 2: Catch up time and level of GDP for the CEECs (Years and billion Euro 1999 prices). 17 See e.g. the statistical annex of European Commission (1998a). 18 The Commission's calculations including Cyprus amounts to 291 billion Euro. 11

12 CEEC/Column GDP in 2002 (Commission's estimates) GDP in 2002 (Assuming actual past growth rates) GDP in 2002 (As in column 3 plus decreasing currency appr.) (1) (2) (3) (4) Czech R Estonia Hungary Poland Slovenia Total: Total: Total: Contribution to the EU's budget Source: Own calculations. Note: The Commission's figures are for GNP. Thus far, the CEECs have generally all experienced an appreciation of their real exchange rates caused by rising prices not being sufficiently offset by a nominal exchange rate depreciation. But are the prices likely to continue to increase at a faster rate in the CEECs compared to the EU? The answer is yes. A country's price level is increasing in the prices of both tradables and nontradables. International productivity differences in tradables and nontradables can thus have implications for relative international price levels, i.e. for real exchange rates. This observation form the basis for the Harrod-Balassa-Samuelson effect, which states that countries with higher productivity in tradables than nontradables tend to have higher price levels. 19 Productivity growth in tradables historically has been higher than in nontradables. One reason for the relatively low productivity growth in nontradables is the sector s overlap with services, which are less likely to benefit to the same extent from standardization and mechanization compared to e.g. manufactures or agriculture. A faster productivity growth in tradables than in nontradables will push up the price of nontradables over time. The effect is greater the more labor intensive are nontradables to tradables. Bearing in mind the state of the CEECs economies after decades of central planning, it could be expected that productivity growth in tradables be quite high for some time to come, thereby pushing up the prices also of nontradables and thus appreciating the countries' real exchange rates (and PPPs) See e.g. Obstfeld and Rogoff (1997). 20 A parallel can be drawn to that rapid manufacturing productivity growth in Japan has led to a sharp appreciation of the Yen that began after the Second World War. 12

13 6. Summary and concluding remarks This paper illustrates that earlier projections on the growth rates needed in the CEECs to catch up to the average level of per capita income in the EU have been overly optimistic as a result of distorted statistics on PPP adjusted per capita income in the CEECs. However, most CEECs have experienced high levels of economic growth over the period analyzed, , and the rate of economic growth is even more impressive when looked upon in Euro terms. Still, the best performing CEECs need some years to catch up to the average level of per capita income in the EU. Per capita income measured at exchange rates has been greatly affected by real exchange rate appreciation, while the extent of the impact of real exchange rate appreciation on the PPP adjusted per capita income estimates is difficult to quantify for methodological reasons. The issue of exchange rate appreciation in the context of catching up, or projecting future levels of income in the CEECs, is something that appears to have been overlooked by the European Commission. For example, the Commission overlooks the possibility of a potential real exchange appreciation in the CEECs in its projection on the future income levels in the CEECs in Agenda An appreciation of the CEECs currencies would lead to higher future levels of income in the countries and thus to a higher contribution to the EU s budget. If the CEECs would continue to grow at the rate observed in the period (in Euro terms), their contribution to the union s budget would be some 35 percent higher than the Commission predicts. If the real exchange rate appreciation in the CEECs would gradually diminish and come to a halt in 2002, their contribution to the EU s budget would still be about 10 percent higher. It appears to be reasonable to assume that the CEECs currencies may continue to appreciate. The Harrod-Balassa-Samuelson effect predicts that countries with higher productivity in tradables than nontradables tend to have higher price levels. The rapid (productivity) growth in the CEECs economies after decades of communist ruling, and the appreciation of the CEECs currencies witnessed thus far indicate that we have such an effect present in the CEECs. The scope of this effect, and how long it may last, is nevertheless difficult to predict. REFERENCES Baldwin, R. E. (1994), Towards an Integrated Europe, Centre for Economic Policy Research (London). 13

14 Baldwin, R. E., Francois, J. F. and R. Portes (1997), The Costs and Benefits of Eastern Enlargement: the Impact on the EU and Central Europe, Economic Policy, pp European Commission (1997), COM (1997), , final. European Commission (1998a), COM (1998), 164, final. European Commission (1998b), COM (1998), , final. European Commission (1998c), COM (1998), 560, final. Obstfeld, M. and K. Rogoff (1997), Foundations of International Economics, MIT, Cambridge. United Nations (1993), United Nations Statistical Commission and Economic Commission for Europe, Conference of European Statisticians Statistical Standards and Studies - No. 47, International Comparison of Gross Domestic Product in Europe 1993, United Nations, New York. World Bank (1993), Purchasing Power of Currencies: Comparing National Incomes Using ICP Data, World Bank, Washington D.C. 14

15 Appendix Table 1: Levels and Growth of per capita GDP in the CEECs (Euro-1994 prices, percent and PPP-Euro) GDP per capita Growth (on previous year) a GDP per capita accum. Real growth Real annual growth GDP per capita Total growth Total real annual growth Real exchange rate effects Real growth effects GDP per capita Column (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) Year /95 95/96 96/ /97 94/97 94/97 94/97 94/97 94/ CEEC Euro % Euro % % Euro Euro % % Euro % Euro % PPS-Euro Czech R Estonia Hungary Poland Slovenia Bulgaria Latvia Lithuania * 5800 Romania Slovakia Source: European Commission (1998b). Note: a The figures are for changes in GDP. The Euro estimates have been converted to constant prices using the implicit GDP deflator of EU

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