Key Determinants of Economic Growth in Central and Eastern European Countries in 1995-2019

Abstract

The single greatest enlargement of the European Union happened in 2004, when ten new countries joined, eight of which were from Central and Eastern Europe, known as CEE. Economic growth matters to all countries, but it is particularly important for those that have recently become members of the European Union. This study aims to research the economic growth of three Central and Eastern European countries: Poland, the Czech Republic and Hungary. Specifically, it investigates the relationship between economic growth and several key determinants, such as Foreign Direct Investment, Inflation, Research and Development and Unemployment. This paper identifies which of these issues are in fact the main determinants of economic growth, especially affecting gross domestic product. Time series annual data are used for the period from 1995 to 2019, OLS regression analysis is carried out for three CEE countries to test variables in each of the selected countries. The choice of the research period results from the reasons regarding the availability of data and the emergence of the global COVID-19 pandemic in 2020, which significantly influenced the international economic situation. The main conclusion is that inflation negatively impacted the economic growth of all three analysed countries. While, it is also noted that Hungarian economic growth was positively impacted by foreign direct investment, and economic growth in the Czech Republic was positively impacted by research and development. Also, in Poland the economic growth was negatively affected by a high rate of unemployment. This study contributes to the existing literature by identifying key determinants of economic growth in CEE countries. This research can be useful for policymakers who can observe CEE countries to see how specific determinants impact economic growth. The motivation to undertake the research resulted from the personal scientific interests of the authors and the revealed cognitive gap.