Real convergence of the Czech Republic based on the Solow model ...

<strong>Real</strong> <strong>convergence</strong> <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> <strong>based</strong> on <strong>the</strong>Solow model <strong>of</strong> economic growth**Věra Tunkrová*The importance <strong>of</strong> <strong>the</strong> economic and social cohesionhas been evident since <strong>the</strong> 1980s not only amongEU member states and for this reason, <strong>the</strong> memberstates <strong>of</strong> this integration group started to cooperatein this field. The <strong>Czech</strong> <strong>Republic</strong>, as well as someEU member states, has to cope with considerableregional disparities. According to this fact, it isobvious, that <strong>the</strong> regional policy has had apermanent substantial role and it is one <strong>of</strong> <strong>the</strong> mostimportant areas among common interest <strong>of</strong> <strong>the</strong> EUmember states. Regional policy helps EU memberstates to increase <strong>the</strong>ir economic level. It is clear,that <strong>the</strong> economic levels <strong>of</strong> <strong>the</strong> EU member statesdiffer. The question is: how are poorer countries ableto catch up with <strong>the</strong> advanced level <strong>of</strong> richercountries and which factors affect <strong>the</strong>m?The main objective <strong>of</strong> this paper is to confirm ordisprove <strong>the</strong> hypo<strong>the</strong>sis <strong>of</strong> absolute / conditional<strong>convergence</strong> <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> to <strong>the</strong> averagelevel <strong>of</strong> <strong>the</strong> EU member states according to <strong>the</strong>Solow model <strong>of</strong> economic growth. At first, <strong>the</strong> Solowmodel and its main assumptions are described.Fur<strong>the</strong>rmore, <strong>the</strong> paper is devoted to <strong>the</strong> economiclevel <strong>of</strong> <strong>the</strong> EU member states and especially to <strong>the</strong>real <strong>convergence</strong> <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> to <strong>the</strong>average level <strong>of</strong> this integration group. At <strong>the</strong> end,factors that influence <strong>the</strong> economic growth <strong>of</strong> <strong>the</strong>country will be described, <strong>based</strong> on <strong>the</strong> specificconditions <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong>.JEL Codes: O11, 047______________*Ing. Věra Tunkrová, Department <strong>of</strong> World Economy, Faculty <strong>of</strong> International Relations, University <strong>of</strong>Economics, Prague. Email: vera.tunkrova@vse.cz** This article was created under <strong>the</strong> solving <strong>the</strong> IGA project “Politics <strong>of</strong> <strong>the</strong> European Union: plans andchanges in <strong>the</strong> background <strong>of</strong> <strong>the</strong> Lisbon Treaty” No. F2/24/2010.

1. Introduction:The importance <strong>of</strong> <strong>the</strong> economic and social cohesion has been evident since <strong>the</strong>1980s not only among EU member states and for this reason, <strong>the</strong> member states <strong>of</strong>this integration group started to cooperate in this field. The <strong>Czech</strong> <strong>Republic</strong>, as wellas some EU member states, has to cope with considerable regional disparities.According to this fact, it is obvious, that <strong>the</strong> regional policy has had a permanentsubstantial role and it is one <strong>of</strong> <strong>the</strong> most important areas among common interest <strong>of</strong><strong>the</strong> EU member states. The EU member states are committed to adopt a commoncurrency Euro and it is only a matter <strong>of</strong> time, before this promise will be fulfilled. Theimportant aspect in this area is <strong>the</strong> need to achieve a certain level <strong>of</strong> real<strong>convergence</strong> to <strong>the</strong> former and richer member states. It is clear, that <strong>the</strong> economiclevels <strong>of</strong> <strong>the</strong> EU member states differ. Regional policy helps EU member states toincrease <strong>the</strong>ir economic level. The question is: how are poorer countries able to catchup with <strong>the</strong> advanced level <strong>of</strong> richer countries and which factors affect <strong>the</strong>m?The main objective <strong>of</strong> this paper is to confirm or disprove <strong>the</strong> hypo<strong>the</strong>sis <strong>of</strong> absolute /conditional <strong>convergence</strong> <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> to <strong>the</strong> average level <strong>of</strong> <strong>the</strong> EUmember states according to <strong>the</strong> Solow model <strong>of</strong> economic growth. At first, <strong>the</strong> Solowmodel and its main assumptions are described. Fur<strong>the</strong>rmore, <strong>the</strong> paper is devoted to<strong>the</strong> economic level <strong>of</strong> <strong>the</strong> EU member states and especially to <strong>the</strong> real <strong>convergence</strong><strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> to <strong>the</strong> average level <strong>of</strong> this integration group. At <strong>the</strong> end,factors that influence <strong>the</strong> economic growth <strong>of</strong> <strong>the</strong> country will be described, <strong>based</strong> on<strong>the</strong> specific conditions <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong>.2. Literature Review:This paper deals with <strong>the</strong> hypo<strong>the</strong>ses <strong>of</strong> absolute and conditional <strong>convergence</strong>according to <strong>the</strong> paper <strong>of</strong> R. Solow (Solow, 1956) and its application inmacroeconomic literature (Soukup, et al., 2007). Several <strong>the</strong>ories <strong>of</strong> regionaldevelopment deal with a similar issue. For example <strong>the</strong> New growth <strong>the</strong>ory (Barro,Sala-i-Martin, 1992). The authors differentiate three types <strong>of</strong> <strong>convergence</strong>. The firsttype is <strong>the</strong> absolute beta – <strong>convergence</strong>. This is a situation, when underdevelopedregions grow faster than mature ones. The second type is <strong>the</strong> so called delta –<strong>convergence</strong>, when it comes to <strong>the</strong> decrease <strong>of</strong> variability between regions (e.g. GDPper capita). The authors follow <strong>the</strong> neoclassic <strong>the</strong>ory and claim that each economy(and also region) reaches ano<strong>the</strong>r equilibrium or as <strong>the</strong>y call this <strong>the</strong> “stable state”.This is defined as <strong>the</strong> conditional beta – <strong>convergence</strong> (<strong>the</strong> third type <strong>of</strong> <strong>convergence</strong>).According to <strong>the</strong> authors, it comes to <strong>the</strong> <strong>convergence</strong> ra<strong>the</strong>r at a regional level thanat an international level. This is caused by similar social, institutional, structural andtechnological parameters <strong>of</strong> geographically closed regions. The conditional beta –<strong>convergence</strong> is <strong>the</strong> process, when <strong>the</strong> pace <strong>of</strong> economic growth (<strong>of</strong> <strong>the</strong> wholeeconomy or region) shows a positive correlation with <strong>the</strong> distance <strong>of</strong> equilibrium.3. The Methodology and Model:The starting point <strong>of</strong> this paper will define <strong>the</strong> Solow model <strong>of</strong> economic growth andits main assumptions. Without such characteristics, it would be very difficult tounderstand <strong>the</strong> o<strong>the</strong>r context. As it was already mentioned in <strong>the</strong> Introduction <strong>of</strong> this

paper, <strong>the</strong> economic level <strong>of</strong> relatively poorer EU member states always converges to<strong>the</strong> average <strong>of</strong> all EU member states. We can examine <strong>the</strong> real <strong>convergence</strong>, in thissense, through <strong>the</strong> Solow model <strong>of</strong> economic growth (Solow, 1956).This model is <strong>based</strong> on <strong>the</strong> assumption <strong>of</strong> a closed economy, in which we consider<strong>the</strong> existence <strong>of</strong> only two sectors – households and firms. The basis for <strong>the</strong> Solowmodel is <strong>the</strong> following production function: Y*=A f (C,L), where Y* stands for <strong>the</strong>potential product, A for <strong>the</strong> technological progress, C for capital and L for labour. Weconsider changes in <strong>the</strong> amount <strong>of</strong> capital, labour and technological progress for <strong>the</strong>factors <strong>of</strong> economic growth. The production factors <strong>of</strong> capital and labour can be freelychanged. Fur<strong>the</strong>rmore we consider full employment. We consider <strong>the</strong> technologicalprogress for an exogenous variable, as its development is independent <strong>of</strong> <strong>the</strong>economic cycle, but it also affects <strong>the</strong> size <strong>of</strong> <strong>the</strong> product. The population growth rateis also considered to be an exogenous variable, as it is also not dependent on <strong>the</strong>development <strong>of</strong> <strong>the</strong> economy.“An important conclusion that follows from <strong>the</strong> Solow model is, <strong>the</strong> claim <strong>of</strong> process <strong>of</strong>gradual <strong>convergence</strong> <strong>of</strong> <strong>the</strong> economic level (that means <strong>the</strong> product per capita) <strong>of</strong> <strong>the</strong>states” (Soukup, et al., 2007). We assume that countries have <strong>the</strong> same aggregateproduction function, as <strong>the</strong>y are open economies and <strong>the</strong> technological progress isavailable to all. The only thing, which differs with <strong>the</strong>se countries, is <strong>the</strong>ir stock <strong>of</strong>labour and capital. According to <strong>the</strong> Solow model it’s true, that a relatively poorercountry will show higher economic growth, so it will catch up to o<strong>the</strong>r countries and allwill reach a common stable state and have similar economic growth. We call this fact<strong>the</strong> hypo<strong>the</strong>sis <strong>of</strong> <strong>the</strong> absolute <strong>convergence</strong>. In practice this hypo<strong>the</strong>sis is not toocommon, poorer countries <strong>of</strong>ten have lower economic growth than wealthier ones.This is explained through <strong>the</strong> hypo<strong>the</strong>sis <strong>of</strong> <strong>the</strong> conditional <strong>convergence</strong> thatargues with exogenous variables. Countries can have different rates <strong>of</strong> savings, and<strong>the</strong> assumption <strong>of</strong> <strong>the</strong> same stock <strong>of</strong> labour and capital is also not true. The economicgrowth <strong>of</strong> countries is influenced by many o<strong>the</strong>r factors that are not accounted for in<strong>the</strong> production function <strong>of</strong> this model.4. The Findings:In this part <strong>of</strong> <strong>the</strong> paper, I will consider <strong>the</strong> exogenous variables (<strong>the</strong> rate <strong>of</strong> savings,<strong>the</strong> rate <strong>of</strong> population growth and technological progress) as variable.The rate <strong>of</strong> savings significantly influences <strong>the</strong> rate <strong>of</strong> investments and this influences<strong>the</strong> stock <strong>of</strong> capital in <strong>the</strong> economy. I will <strong>the</strong>refore examine <strong>the</strong> change <strong>of</strong> rate <strong>of</strong>savings, hence <strong>the</strong> impact <strong>of</strong> <strong>the</strong> changes <strong>of</strong> capital in <strong>the</strong> economic growth.According to <strong>the</strong> Solow model, <strong>the</strong> economy in a stable state shows zero economicgrowth. “If <strong>the</strong> economy shows a higher rate <strong>of</strong> savings, it will show higherinvestments and <strong>the</strong>n also higher stock <strong>of</strong> capital and higher rate <strong>of</strong> product percapita” (Soukup, et al., 2007). If it comes to <strong>the</strong> increase <strong>of</strong> savings, it will temporarilyincrease <strong>the</strong> economic growth <strong>of</strong> <strong>the</strong> country. This increase will only have atemporary character, as <strong>the</strong> economy will come to a new stable state and <strong>the</strong> rate <strong>of</strong>economic growth will again turn back to its original level.

GDP per capita (EUR)Graph No. 1 Relationship between <strong>the</strong> share <strong>of</strong> investments and level <strong>of</strong> product percapita among countries <strong>of</strong> <strong>the</strong> EU eastern enlargement1700015000130001100090007000500030001000-10000 20 40 60 80Share <strong>of</strong> investment in GDP (%)Source: EUROSTAT and own calculations.According to this graph, it is clear that in conditions <strong>of</strong> countries <strong>of</strong> <strong>the</strong> EU eastenlargement, <strong>the</strong> claim <strong>of</strong> <strong>the</strong> Solow model in regards to <strong>the</strong> relationship <strong>of</strong> <strong>the</strong> rate <strong>of</strong>savings (rate <strong>of</strong> investments) and <strong>the</strong> rate <strong>of</strong> product per capita was confirmed. Icame to <strong>the</strong> conclusion through <strong>the</strong> regression analysis <strong>of</strong> <strong>the</strong> countries <strong>of</strong> <strong>the</strong> EUeastern enlargement, that between <strong>the</strong>se two variables exists a relatively closerelationship – GDP per capita in PPP depends on a share <strong>of</strong> investment <strong>of</strong> 74.5%.This claim is obvious, as <strong>the</strong> investments represent a relatively large portion <strong>of</strong>produced GDP <strong>of</strong> <strong>the</strong>se countries. According to <strong>the</strong> economist Petr Sedlacekinvestments significantly contribute to <strong>the</strong> shaping <strong>of</strong> <strong>the</strong> economic cycle and it is veryimportant to support a healthy investment climate to <strong>the</strong> economy (Sedlacek, 2006).In graph No. 2 <strong>the</strong> results are shown from <strong>the</strong> regression analysis for <strong>the</strong> rate <strong>of</strong>savings (investments) and <strong>the</strong> pace <strong>of</strong> economic growth among countries <strong>of</strong> <strong>the</strong> EUeastern enlargement. In this case, I came to <strong>the</strong> opposite conclusion that <strong>the</strong> pace <strong>of</strong>economic growth depends on <strong>the</strong> rate <strong>of</strong> investments in conditions <strong>of</strong> countries <strong>of</strong> EUeastern enlargement <strong>of</strong> 18.7%. According to Petr Kral <strong>the</strong> middle and eastern regiondid not belong to significant areas <strong>of</strong> FDI flows in recent years (Kral, 2004). It isobvious, that I came to <strong>the</strong> right conclusion for <strong>the</strong> selected sample <strong>of</strong> countries. If weconsidered this relationship for o<strong>the</strong>r countries <strong>of</strong> <strong>the</strong> world, <strong>the</strong>n <strong>the</strong> investments(savings) would represent an important factor <strong>of</strong> economic growth. The conclusionwould also be different for <strong>the</strong> group <strong>of</strong> advanced economies <strong>of</strong> <strong>the</strong> world, where <strong>the</strong>investments represent <strong>the</strong> engine <strong>of</strong> economic growth.

Pace <strong>of</strong> economic growth (%)Graph No. 2 Relationship between <strong>the</strong> share <strong>of</strong> investments and <strong>the</strong> pace <strong>of</strong>economic growth among <strong>the</strong> countries <strong>of</strong> EU eastern enlargement500 20 40 60 80-5-10-15-20Share <strong>of</strong> investment in GDP (%)Source: EUROSTAT and own calculations.Fur<strong>the</strong>rmore, I will consider <strong>the</strong> rate <strong>of</strong> population growth as an inconsistent variable.If we presume <strong>the</strong> increase <strong>of</strong> <strong>the</strong> rate <strong>of</strong> population growth and <strong>the</strong> rate <strong>of</strong>investments remains unchanged, <strong>the</strong> average capital – labour stock will decrease.However, <strong>the</strong> economy reaches a new stable state, with lower capital – labour stockand also lower product per capita. According to <strong>the</strong> Solow model, we can assumetwo conclusions – countries with a higher rate <strong>of</strong> population growth will have a lowerproduct per capita and fur<strong>the</strong>rmore, due to population growth, <strong>the</strong>re is growth <strong>of</strong>capital volume and constant economic growth <strong>of</strong> <strong>the</strong> whole product (Soukup, et al.,2007).In graph No. 3, <strong>the</strong>re is <strong>the</strong> regression analysis <strong>of</strong> <strong>the</strong> EU eastern enlargementcountries, specifically in relationship to <strong>the</strong> GDP per capita and <strong>the</strong> populationgrowth. In case <strong>of</strong> <strong>the</strong>se specific groups <strong>of</strong> countries I came to a conclusion that <strong>the</strong>GDP per capita is quite strongly dependent on <strong>the</strong> population growth – 76.1%.According to <strong>the</strong> chosen sample <strong>of</strong> countries I came to a different conclusion thanthat <strong>of</strong> Soukup – with a higher rate <strong>of</strong> population growth <strong>the</strong> product per capita alsoincreases. This conclusion <strong>of</strong> <strong>the</strong> regression analysis is strongly influenced by higherliving standards <strong>of</strong> Slovenia, Cyprus and Malta. The conclusion would be different, if Iwere to consider ano<strong>the</strong>r group <strong>of</strong> countries.

GDP per capita (EUR)Graph No. 3 Relationship between <strong>the</strong> population growth and GDP per capita amongcountries <strong>of</strong> <strong>the</strong> EU eastern enlargement180001600014000120001000080006000400020000-10 -5 0 5 10Population growth (%)Source: EUROSTAT and own calculations.The last variable according to <strong>the</strong> Solow model that influences economic growth <strong>of</strong><strong>the</strong> country is <strong>the</strong> technological progress. Solow differentiates two types <strong>of</strong>technological progress – a labour expanding technological changes and a neutraltechnological progress. Generally we can say that <strong>the</strong> technological progress allowsan increase in labour efficiency. The higher <strong>the</strong> labour efficiency each country shows,<strong>the</strong> higher <strong>the</strong> economic growth we can presume. This fact explains to us, why itleads to constant growth <strong>of</strong> product per capita. From <strong>the</strong> state perspective it isnecessary to invest financial resources for science and research in order to reach <strong>the</strong>highest degree <strong>of</strong> technological progress and higher labour efficiency. So in futureinvested financial resources it will surely cause <strong>the</strong> multiplier effect and that countrywill gain a comparative advantage over <strong>the</strong> o<strong>the</strong>r states that will ignore technologicalchanges.5. Summary and ConclusionsThe main conclusion <strong>of</strong> <strong>the</strong> Solow model is <strong>the</strong> hypo<strong>the</strong>ses <strong>of</strong> <strong>the</strong> absolute andconditional <strong>convergence</strong>. In this part, I will examine <strong>the</strong>se hypo<strong>the</strong>ses in concreteconditions <strong>of</strong> <strong>the</strong> group <strong>of</strong> <strong>the</strong> EU eastern enlargement countries.To assess <strong>the</strong> degree <strong>of</strong> real <strong>convergence</strong> <strong>of</strong> a state, we can use twomacroeconomic indicators – GDP per capita in PPP or <strong>the</strong> comparative price level. Ichose <strong>the</strong> indicator <strong>of</strong> GDP per capita in PPP for a comparison. In table No. 1 (SeeAnnex), <strong>the</strong>re is a percentage increase <strong>of</strong> real GDP in <strong>the</strong> EU-27 countries in 2009. If<strong>the</strong> hypo<strong>the</strong>sis <strong>of</strong> <strong>the</strong> absolute <strong>convergence</strong> according to <strong>the</strong> Solow model shouldhave been proven, relatively poorer countries would show higher rates <strong>of</strong> economic

growth than wealthier countries. From this table and graph it is clear, that thishypo<strong>the</strong>sis was not proven. I will support this conclusion with a concrete example <strong>of</strong><strong>the</strong> <strong>Czech</strong> <strong>Republic</strong>. In 2009 The <strong>Czech</strong> <strong>Republic</strong> is 81% <strong>of</strong> <strong>the</strong> average level <strong>of</strong> EU-27 countries and Slovenia is 88% (EUROSTAT). The <strong>Czech</strong> <strong>Republic</strong>, as a relativelypoorer country should show higher rates <strong>of</strong> economic growth during this period.According to table No. 1 this is not true. Comparing <strong>the</strong> table and <strong>the</strong> graph, we alsocome to this conclusion in o<strong>the</strong>r examples (Slovakia and Poland, Cyprus and Malta).We can not presume that <strong>the</strong> hypo<strong>the</strong>sis <strong>of</strong> absolute <strong>convergence</strong> is always true inconditions <strong>of</strong> <strong>the</strong> EU eastern enlargement group <strong>of</strong> countries. The explanation gives<strong>the</strong> hypo<strong>the</strong>sis <strong>of</strong> conditional <strong>convergence</strong> which accounts for some exogenousfactors.There are many approaches how to examine exogenous factors which influence <strong>the</strong>economic growth <strong>of</strong> a country. Undoubtedly it depends on <strong>the</strong> specific conditions <strong>of</strong> acountry and its actual position in <strong>the</strong> economic cycle. Soukup defines severalexogenous factors, included among <strong>the</strong>m <strong>the</strong> human capital <strong>of</strong> <strong>the</strong> country. Not one<strong>of</strong> <strong>the</strong> countries disposes <strong>of</strong> <strong>the</strong> educational system <strong>of</strong> <strong>the</strong> same quality and with thisit’s related to <strong>the</strong> special qualification <strong>of</strong> labour. These factors influence <strong>the</strong>production function <strong>of</strong> <strong>the</strong> country, which will be <strong>the</strong> country with quality humancapital at a higher level. Fur<strong>the</strong>rmore <strong>the</strong> exogenous factor is <strong>the</strong> political capital <strong>of</strong><strong>the</strong> country. It is clear, that among <strong>the</strong>se countries <strong>the</strong>re are differences in a politicaland legislative environment that fur<strong>the</strong>rmore influences o<strong>the</strong>r areas such as businessconditions, foreign direct investments and so on. Economic growth also indirectlydepends on <strong>the</strong> infrastructure <strong>of</strong> <strong>the</strong> country. A qualitative road and railway net will bean advantage for trade and services.According to Sohn and Lee <strong>the</strong> economic growth is largely influenced by trade. Theyexamine <strong>the</strong> relationship between trade and economic growth and confirm <strong>the</strong>assumption that a free trade area as an integration that supports economic growth.This fact depends on <strong>the</strong> region where <strong>the</strong> integration group is located (Sohn; Lee,2010). M. Castano examines <strong>the</strong> influence <strong>of</strong> socioeconomic factors <strong>of</strong> <strong>the</strong> economicgrowth <strong>of</strong> a country. She comes to <strong>the</strong> conclusion that public capital has a negativeeffect on economic growth, <strong>the</strong> social capital on <strong>the</strong> o<strong>the</strong>r hand supports economicgrowth (Castano, 2007).Now it is time to devote to <strong>the</strong> specific factors that influence <strong>the</strong> economic growth <strong>of</strong><strong>the</strong> <strong>Czech</strong> <strong>Republic</strong>. Firstly I must mention <strong>the</strong> dependence on <strong>the</strong> economy <strong>of</strong> ourneighbour – Germany as <strong>the</strong> bigger export partner. Especially at this time, when <strong>the</strong>economies are recovering from <strong>the</strong> financial crisis, it is very important how Germanyis dealing with this situation and this will have a significant influence on <strong>the</strong> economicgrowth <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong>. Fur<strong>the</strong>rmore a specific factor is <strong>the</strong> competitiveness <strong>of</strong><strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> in <strong>the</strong> middle and eastern region. It is necessary to support <strong>the</strong>awareness <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> as a qualitative and innovative potential economy.According to <strong>the</strong> analysis <strong>of</strong> meeting <strong>the</strong> Maastricht <strong>convergence</strong> criteria and <strong>the</strong>degree <strong>of</strong> alignment <strong>of</strong> <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> and Eurozone <strong>the</strong> economic growth <strong>of</strong> <strong>the</strong><strong>Czech</strong> <strong>Republic</strong> was influenced by <strong>the</strong> rapid increase <strong>of</strong> food and energy prices, withan increase <strong>of</strong> VAT from 5% to 9%. The <strong>Czech</strong> <strong>Republic</strong> fur<strong>the</strong>rmore introducedecological tax and medical fees and increased excise tax as well. An importantexogenous factor is <strong>the</strong> increase <strong>of</strong> petroleum prices (MF CR and CNB, 2010).The <strong>Czech</strong> <strong>Republic</strong> has been a part <strong>of</strong> <strong>the</strong> European Union since 2004 and not onlysince this time, it is very important to examine its economic level in comparison too<strong>the</strong>r member states <strong>of</strong> this integration group. At this time, <strong>the</strong> <strong>Czech</strong> <strong>Republic</strong> has

81% <strong>of</strong> <strong>the</strong> economic average level <strong>of</strong> this group. Only Slovenia and Cyprus show abetter economic level from countries <strong>of</strong> <strong>the</strong> EU eastern enlargement. I came to <strong>the</strong>conclusion, that in conditions <strong>of</strong> <strong>the</strong> EU eastern enlargement group <strong>of</strong> countries, <strong>the</strong>main indicator, which influences <strong>the</strong> economic growth, is <strong>the</strong> share <strong>of</strong> investments(74.5%) and population growth (76.1%). On <strong>the</strong> o<strong>the</strong>r hand, <strong>the</strong> pace <strong>of</strong> economicgrowth that depends on <strong>the</strong> share <strong>of</strong> investments is very low (18.7%).References:Barro, R. and Sala-i-Martin, X. 1992. Convergence, The Journal <strong>of</strong> Political Economy,vol. 100, no. 2. pp. 223-251.Castano, M. S. 2007. The influence <strong>of</strong> socioeconomic factors on economic growth.International Advances in Economic Research, vol. 13, no. 2. pp. 139-45.Dubská, D. 2007. Porovnání úspěšnosti konvergence deseti nových členských zemíEU [online]. Praha: ČSÚ [cit. 2011-01-04]. Available from WWW:.EUROSTAT. 2010. Regional gross domestic product (PPS per inhabitant in % <strong>of</strong> <strong>the</strong> EU-27 average), by NUTS 2 regions. [cit. 2011-03-22] Available fromhttp://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tgs00006.Fifth report on economic, social and territorial cohesion: Investing in Europe’sfuture [online]. 2010. Belgium: Publications Office <strong>of</strong> <strong>the</strong> European Union [cit. 2011-03-22]. Available from WWW:. ISBN 978-92-79-17800-9.Fondy Evropské unie [online]. 2007 [cit. 2011-03-21]. Strukturální fondy EU -Regionální politika EU. Available from WWW: .Jetmar, M. 2003. Druhá zpráva o pokroku v oblasti hospodářské a sociálnísoudržnosti [online]. Praha [cit. 2011-03-21]. Available from WWW:.Kolektiv autorů MF ČR a ČNB. 2010. Vyhodnocení plnění Maastrichtskýchkonvergenčních kritérií a stupně sladěnosti ČR s eurozónou. [online]. Praha:Ministerstvo financí ČR a ČNB [cit. 2011-01-04]. Dostupné z WWW:https://www.cnb.cz/cs/menova_politika/strategicke_dokumenty/download/maastricht_vyhodnoceni_2010.pdfKrál, P. 2004. PZI a jejich vliv na tempo dlouhodobého růstu v ČR [online]. Praha:ČNB [cit. 2011-01-08]. Dostupné z WWW: .Sedláček, P. 2006. Analýza investičního cyklu [online]. Praha: ČSÚ [cit. 2011-01-08].Available from WWW: .

Sohn, Ch. and Lee, H. 2010. Trade structure, FTAs, and Economic Growth. Review<strong>of</strong> Development Economics, vol. 14, no. 3, pp. 683 – 698.Solow, R. M. 1956. A contribution to <strong>the</strong> Tudory <strong>of</strong> Economic Growth. QuarterlyJournal <strong>of</strong> Econometric, vol. 70, pp. 65 – 94.Soukup, J., et al. 2007. Makroekonomie: Moderní přístup. Praha: ManagementPress, 514 p. ISBN 978-80-7261-174-4.UNCTAD. 2010. UNCTADSTAT – <strong>Real</strong> GDP Growth Rates, total and per capita, Antal,1970 - 2009. [cit. 2011-03-22] Available fromhttp://unctadstat.unctad.org/TableViewer/tableView.aspx.Wooldridge, J. M. 2009. Introductory Econometrics. A modern approach. FourthEdition. Canada: South-Western, a part <strong>of</strong> Cengage Learning. pp. 21-68. ISBN 13:978-0-324-78890-7.

AppendixTable No. 1 Annual increase <strong>of</strong> real GDP in <strong>the</strong> EU-27 countries (%)Annual average growth rates <strong>of</strong> real gross domestic product – EU 27PERIOD 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008ECONOMYAustria 3,56 3,32 3,36 0,83 0,86 1,21 2,31 2,04 3,30 3,38 1,80Belgium 1,68 3,42 3,74 0,79 1,51 0,99 2,97 1,67 2,85 2,71 1,10Bulgaria 4,01 2,30 5,39 4,07 5,59 5,01 6,64 6,25 6,09 6,17 6,00Cyprus 5,04 4,85 5,04 3,98 2,10 1,91 4,20 3,95 4,04 4,36 3,70<strong>Czech</strong> <strong>Republic</strong> -0,76 1,34 3,65 2,46 1,90 3,60 4,48 6,37 6,36 5,80 3,50Denmark 2,16 2,56 3,53 0,70 0,47 0,38 2,13 3,06 3,52 1,82 -1,10Estonia 4,44 0,31 7,85 7,66 8,02 7,24 8,26 10,15 11,19 7,11 -3,60Finland 5,19 3,89 5,01 2,64 1,64 1,77 3,73 2,92 5,01 4,40 0,90France 3,50 3,30 3,91 1,85 1,03 1,09 2,47 1,71 1,99 1,90 0,70Germany 2,03 2,01 3,21 1,24 0,00 -0,22 1,06 0,78 2,87 2,48 1,30Greece 3,36 3,42 4,48 4,49 3,90 5,04 4,58 3,83 4,19 4,00 2,90Hungary 4,86 4,15 5,20 4,07 4,37 4,18 4,81 4,13 3,88 1,33 0,50Ireland 8,05 10,39 9,37 6,07 6,58 4,46 4,38 6,02 5,74 4,92 -2,30Italy 1,44 1,93 3,58 1,80 0,34 0,04 1,20 0,09 1,87 1,46 -1,00Latvia 4,73 3,28 6,91 8,04 6,47 7,20 8,68 10,60 12,24 10,31 -4,60Lithuania 7,49 -1,47 4,09 6,65 6,92 10,32 7,32 7,94 7,66 8,78 3,20Luxembourg 6,49 8,42 8,44 2,52 4,10 2,10 4,88 5,02 6,12 5,24 -0,90Malta 5,13 4,72 5,03 -1,62 2,62 -0,31 0,21 3,29 3,38 3,92 2,30Ne<strong>the</strong>rlands 3,92 4,68 3,94 1,93 0,08 0,34 2,24 1,51 3,01 3,46 2,00Poland 4,98 4,52 4,25 1,21 1,44 3,87 5,34 3,62 6,13 6,52 4,80Portugal 4,85 3,84 3,92 2,02 0,76 -0,81 1,52 0,74 1,20 2,22 0,00Romania -4,82 -1,15 2,15 5,75 5,12 5,22 8,46 4,18 7,86 5,97 7,10Slovakia 3,69 0,32 0,72 3,23 4,12 4,16 5,42 6,04 8,27 8,70 6,30Slovenia 3,59 5,33 4,13 3,10 3,66 2,81 4,44 4,15 5,72 6,07 3,50Spain 4,47 4,75 5,05 3,65 2,70 3,10 3,27 3,62 3,86 3,83 1,20Sweden 3,81 4,60 4,40 1,06 2,41 1,91 4,13 3,30 4,09 2,58 -0,20UK 3,35 3,04 3,80 2,37 2,05 2,77 3,26 1,84 2,85 3,12 0,70Source: UNCTAD

Graph No. 1 GDP per capita in PPP in <strong>the</strong> EU-27 countriesSource: Eurostat, 2009