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“Infant” Economies In South-Eastern Europe

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  • Grigoris Zarotiadis

Abstract

Transition economies have responded quite differently to similar pro-cedures and foreign economic and socio-political interventions. This is partly be-cause of the exogenous (from the economic perspective) features of each country. In the present paper we focus on the economic ex-planation. Following an introductory dis-cussion of the stylized facts of the deepening segregation within the Central and Eastern European transition economies, we pro-ceed with a general equilibrium model of imperfect competition (a la Dixit-Stiglitz). We introduce (1) more than one imperfectly competitive manufacturing sectors and (2) capital as the ‘pseudo’ production factor that provokes economies of scale. Based on the abstract theoretical model, we argue that the supposed automatic, self-balancing process for closing cross-country disparities may not appear, even if the non-economic factors are neutralized. This is be-cause there is a possibility of experiencing a virtuous cycle of endogenously reinforced attraction of foreign accumulated capital. Economies that do not have the necessary features for this to happen because they start from a comparatively inferior level of development and/or due to a lack of pre-existing strong manufacturing – ‘ infant economies’ according to our proposed ter-minology – will experience an endogenous-ly justified, flatter path of development and may not find it easy to catch up with others.

Suggested Citation

  • Grigoris Zarotiadis, 2020. "“Infant” Economies In South-Eastern Europe," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(226), pages 45-72, July – Se.
  • Handle: RePEc:beo:journl:v:65:y:2020:i:226:p:45-72
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    References listed on IDEAS

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    1. Alexander Glas & Michael H�bler & Peter Nunnenkamp, 2016. "Catching up of emerging economies: the role of capital goods imports, FDI inflows, domestic investment and absorptive capacity," Applied Economics Letters, Taylor & Francis Journals, vol. 23(2), pages 117-120, February.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    3. Gheorghe H. Popescu, 2014. "FDI and Economic Growth in Central and Eastern Europe," Sustainability, MDPI, vol. 6(11), pages 1-15, November.
    4. Joze P. Damijan & Matija Rojec, 2004. "Foreign Direct Investment and the Catching-up Process in New EU Member States: Is There a Flying Geese Pattern?," wiiw Research Reports 310, The Vienna Institute for International Economic Studies, wiiw.
    5. Grigoris Zarotiadis, 2008. "FDI and International Trade Relations: A Theoretical Approach," International Trade and Finance Association Conference Papers 1136, International Trade and Finance Association.
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    More about this item

    Keywords

    FDI under imperfect com-petition; infant economies; South-Eastern Europe;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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