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The Rationale and Implications of Internal Devaluation in the New Member States of EU

This research is focused on the analysis of rationale and impacts of internal devaluation policies in the EU’s new member states. It has pointed the causes and outcomes of internal devaluation policy. The research is performed using statistical and panel data analysis. The arguments for the implementation of this policy are summarized and examined alongside the arguments that point to its inefficiency and the long-term negative consequences of putting the brakes on economic development. The influence of unit labour costs, productivity, export, consumption on the GDP growth rate has been investigated. The results emphasize that improvement in export competitiveness will not have a positive influence on GDP growth rate. It is still determined with the domestic demand. The austerity policy (as a channel of internal devaluation) is not applicable in any of the EU member states. The EU should put more effort on the strong governance respecting the heterogeneity of the EU member states.

internal devaluation; Baltic states; CEE countries; ULC; productivity

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