Conditional Convergence in Transition Economies

The authors set out to determine if the convergence theory passes the test in 25 transition economies. On the basis of statistical data for the years 1991-2004, using an econometric model, they analyze the influence of GDP per employee on the growth of labor productivity. They also consider other factors with an influence on sustainable economic growth. Considering the significant heterogeneity of the analyzed economies in terms of market reforms and institutional conditions, the authors divided the sample into three relatively homogenous groups: 10 new European Union member states excluding Cyprus and Malta; 12 CIS countries; and five Southern and Eastern European economies. The authors evaluated conditional convergence in individual groups of economies, concluding that economies with lower GDP per employee at the start of transition were characterized by a higher rate of growth for most of the analyzed period. GDP per employee primarily depended on investment in physical and human capital, the share of government spending in GDP and inflation. Moreover, the analysis showed that convergence processes in individual countries led to converging long-term economic growth rates, which were positive rather than neutral, contrary to the classic convergence theory