Collateral benefit: the developmental effects of EU-induced state building in Central and Eastern Europe

According to the literature on economic development, the upgrading of core state institutions is the sine qua non of promoting growth and development in lesser-developed countries. The European Union (EU) is the first transnational integration regime that has experimented with measures to upgrade core state institutions. It did so in the pre-accession period of the would-be member states in Central and Eastern Europe (CEE). In this paper, we empirically explore the developmental effects of the EU-induced upgrading of the judiciary, bureaucracy and competition authority in CEE countries. We base our analysis on two new datasets: one on the quality of foreign trade and the other on institutional reform measures of the judiciary, bureaucracy and competition authority. Our main finding is that EU-induced upgrading of core state institutions, especially the judiciary, significantly improves developmental outcomes. In the post-accession period, however, the European Commission has only a weak capacity to enforce EU-wide norms that can guarantee the quality of these core state institutions. The lack of enforceable standards on the quality of core state institutions undermines the effectiveness of EU policies aimed at achieving economic convergence.