Academic journal article International Advances in Economic Research

Long-Term Growth Scenarios for Poland to 2025

Academic journal article International Advances in Economic Research

Long-Term Growth Scenarios for Poland to 2025

Article excerpt

Abstract

One of the major long-run problems facing the economies in transition is whether their productive potential will achieve the average per capita levels typical of the EU member countries in the foreseeable future. If so, what possible measures should be taken to reach this end? This issue applies in particular to Poland with a GDP per capita being roughly a half of what it is in Greece or Portugal. An attempt to give an answer to these questions is given in the paper by means of simulations based on the W8-D model for the Polish economy. The model served as a tool to elaborate a long-term forecast and run alternative policy scenarios to cover realistic boundaries of the future economic development of Poland up to the year 2025. (JEL 057)

Introduction

Forecasts for the economic growth of Poland up to the year 2010 began in the 1990s. The Lodz Institute of Econometrics and Statistics used a W5 model and updated the forecasts twice a year for presentation at international conferences, for example, at the Project LINK meetings. In the next years, further medium-term forecasts were based on consecutive versions of the W8 model [Welfe W. et al., 1997b; Courbis and Welfe W.,1999; Welfe A., 2000]. Their results were used by the Ministry of Economy engaged in medium-term economic policy programs. At the same time, medium-term forecasts were also built by governmental agencies and occasionally by the Committee Poland 2000 Plus PAN [Komitet Prognoz, 2000; Karpinski et al., 1999]).

The forecasts prepared by the Lodz Insitute exhibited reasonable accuracy, especially for the initial years of the forecasts. Major failures in this area resulted mainly from the inability of the forecasters to foresee domestic shocks (for example, political and economic-social transformation, or economic policy distortions) or external ones (for example, financial shocks in the Far East and Russia [Welfe and Sabanty, 1999]).

All this encouraged the authors to extend the time horizon up to 25 years. The construction of a long-term forecast required re-elaboration of equations explaining changes in the economic potential (human capital and R&D) and extension by equations generating technological progress. To this end, a new macroeconometric model of the Polish economy, W8-D, was constructed [Welfe, W., 2001; Welfe, W. et al., 2002a, 2002b]. The model was built with the intention of meeting the needs of long-term macroeconomic analyses. Its simulation versions aim to support the work on the long-term strategy of economic and social development of the country. The results of the long-term forecast were used to quantify the government's proposals on growth strategy [Board of Ministers, 2000].

The model takes into account the impact of technical progress on capacity output, represented by the changes in total factor productivity (TFP). The endogenization of technical progress followed the lines advocated by the endogenous theory of growth [Welfe et al., 2001]. It was executed by means of relating the outlays on R&D and education on expenditures and private sectors and indirectly on GDP.

The specification of individual equations rests on the extensive macromodelling experiences described in the world literature on the subject [Bodkin et al., 1991; Dreze et al., 1990; Whitley, 1994]. The model is one-sectoral. Its equations explain the final demand and the potential supply, with emphasis on the role of major factors of growth. The equations also allow for the formation of labor force data and unemployment rates. The model is closed, using equations explaining prices and wages, and financial flows (such as income, expenditures, and savings of households, of enterprises, and the government budget, as well as money and capital resources and their use.

The basic equations of the model (for example, production function, consumer and investment demand functions, and price and wage equations) are stochastic. …

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