Academic journal article The Journal of Business Forecasting Methods & Systems

The Central European Trade Union in the Take-Off Stage of Economic Growth

Academic journal article The Journal of Business Forecasting Methods & Systems

The Central European Trade Union in the Take-Off Stage of Economic Growth

Article excerpt

I. Central European Free Trade Association (CEFTA)

In the 1991 Visegrad summit, Poland, Hungary and Czechoslovakia - to be divided afterwards into the Czech Republic and Slovakia - set up proposals to establish a trade association, which could serve both as a forum for intra-regional cooperation and enhance the leverage on future membership with the European Union. The agreement of the Central European Free Trade Association (CEFTA) was signed in December 1992, and its provisions became official in March 1993. The original agreement was amended in late 1995 to permit enlargements of the association, and consequently, Slovenia became the fifth member of CEFTA in January of 1996.

The countries in transition, which are characterized by the transitional state of their economies from a centrally administered system to one based on market principles, comprises two groups of countries. The first group of the transition economics consists of countries that are "less advanced in transition" economies, such as Russia, Ukraine, Bulgaria and Romania. In these countries, economic growth has not resumed and progress towards financial stabilization has been very slow. The major causes of their failure to halt the resulting from transformation economic contraction are delays in structural reforms, lack of macroeconomic discipline, policy slippages, mismanagement, and massive bad loan problems. In 1996, the major countries of the group of the less advanced in transition economies registered negative growth rates. Last year, real output is estimated to have declined by 11% in Bulgaria, 6.2% in Russia, and 8.5% in Ukraine.

The second group consists of the "more advanced in transition" economies, such as the members of CEFTA, which adopted and implemented to their full potential economic reforms. They have made substantial progress with structural reforms in a broad range of areas, including the banking system. Following declines in output, which is an unavoidable feature of the first phase of the transformation process, all members of CEFTA entered the stabilization phase in 1994, and since then they registered positive growth rates in real output.

To assess the economic importance of the member countries of CEFTA within the global economy in general, and the European Union in particular, the method of using gross domestic product (GDP) data expressed in national market exchange rates is not appropriate because ofmarked differences between market rates and purchasing power parities (PPPs). Our analysis evaluates the market size and the future role of the major countries in transformation based on estimates of PPPs that have been derived from the International Monetary Fund's (IMF) and the Organization for Economic Cooperation and Development (OECD) projects of aggregating economic indicators across countries.

The PPP-based GDPs for the transforming countries are higher than their corresponding exchange rate-based figures because PPPs of developing countries' currencies tend to be understated by exchange rates. The accompanying Tables reveal the significant role that the CEFTA countries are expected to play in the European economy in the second part of this decade.

In terms of market size, the income of the five members of the CEFTA was $US 440.8 billion in 1996, expressed in PPPbased levels of GDP, which is about 27% of Germany's income and close to 7% of the income of the fifteen-member European Union. The average standard of living of the association, measured in PPP-based per capita GDP weighted by market shares, was about $7000, which is 27 percent of the standard of living of the United States and 38 percent of the European Union (see Table 4).

Regarding their recent economic performance, the member states of CEFTA have grown at rates which are twice those of the European Union. During 1994-96, the weighted by market shares average annual growth rate in CEFTA was 4.9% compared with 2. …

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