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What Drives Competitiveness: The Case of New EU Member States

The importance of competitiveness of the contemporary economies has been a popular topic among economists, politicians and the general public. Nevertheless, there is little consensus based on empirical findings on what are the sources of nation’s competitiveness, especially in the context of an economic and political union like the EU. Thus, the goal of this paper is to empirically pinpoint the determinants of competitiveness for eleven new EU member states (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia). We measure competitiveness through GDP per person employed while our explanatory variables are divided into two groups of determinants: price and non-price competitiveness factors. Consequently, we set the following hypothesis that the role of non-price competitiveness factors is more important compared to price competitiveness factors in the new EU member states. In order to test it, we employ linear dynamic panel model based on one step GMM estimator (Arellano-Bond) on the yearly data, covering the period from 1999 to 2016. The most interesting results refer to the positive role of the government and the structure of exported goods (both non-price competitiveness factors). The relevance of our result extends beyond this sample, as it demonstrates the necessity of examining factors other than level of wages, prices and exchange rates when looking at the competitiveness of contemporary economies.

Competitiveness, new EU member states, dynamic panel analysis, GDP per person employed

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