4. Economic transformation in Central Europe
4.3. Phase of growth
4.3.2. Investments
Investments, particularly in fi xed assets, is the main driving factor of the increase in physical capital per capita (see Section 4.1.2). Figures 4.5a and 4.5b and Table 4.6 indicate the pace of evolution of real fi xed investment annual growth from 1990. Th e most striking tendency is the high changeability in annual growth rates Figure 4.4b. Real hourly minimum wages in Poland and SECs (US$, at PPP)
Source: as in Figure 4.4a 0
1 2 3 4 5 6
1990 1994 1998 2002 2006 2010
Poland Greece Portugal Spain Turkey
Figure 4.5a. Real fi xed investment growth in CECs, percent change from a year earlier Source: Global Insight (GI) Database
Figure 4.5b. Real fi xed investment growth in Poland and SECs, percent change from a year earlier
Source: as in Figure 4.5a –40
–30 –20 –10 0 10 20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Poland
Czech Republic Hungary Slovak Republic
Ukraine p Ukraine 2009 = –50,5
–30 –20 –10 0 10 20 30
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Poland Greece Portugal Spain Turkey
of real fi xed investment. In CECs, the highest variation was recorded in Ukraine and the Slovak Republic (Table 4.6). Interestingly, Poland’s real fi xed investment growth rate was relatively the most stable and on average, along with Turkey, the highest (Figure 4.5b and Table 4.6). In the SECs, the most dramatic fl uctuations were recorded in Portugal and Greece (Figure 4.5b and Table 4.6). Th e high stand-ard deviation coeffi cients signal the scale of dependence of real fi xed investment annual growth on external factors, exports developments in particular. Invest-ment, capital fl ows and trade are main channels of globalization impact on na-tional economies.
Figures 4.6a and 4.6b present the share of gross capital formation in GDP over 1990–2011 in CECs and SECs respectively. In the fi rst phase of transformation, the share of total investment in GDP had fl uctuated signifi cantly. At the end of the period, there was convergence of gross capital formation shares in GDP. Po-land, for most of the period, had the lowest share of total investment in its GDP (Figure 4.6a).
During the entire period, the average rate of total investment in Poland was about 21% of GDP – the lowest among all the countries included in the study (Figure 4.6a). In Hungary, this rate was higher by 2 percentage points, and in the Czech Republic and the Slovak Republic, it was higher by about 7 percent-age points. All SECs used to have a higher than Poland gross capital formation as percent of GDP (Figure 4.6b). Detailed statistical parameters of the whole sample are presented in Table 4.7. In 1990–2011 Spain had the highest average share of gross capital formation in its GDP. Th e SECs displayed relatively high uniformity both in terms of average share and in terms of standard deviation and coeffi cient of variability of gross capital formation.
Table 4.6. Descriptive statistical parameters for real fi xed investment growth in CECs and SECs in 1990–2012
Country Maximum Minimum Range Average Standard
deviation
Number of
observa-tions
Czech Republic 13.23 –11.39 24.63 2.08 5.63 17
Hungary 12.84 –10.98 23.82 2.01 6.35 21
Poland 21.90 –9.81 31.71 6.40 8.35 22
Slovak Republic 30.12 –27.33 57.44 0.82 13.49 23
Ukraine 27.40 –50,49 77.89 1.15 19.83 22
Greece 20.43 –20.75 41.18 1.14 9.85 23
Portugal 14.17 –13.75 27.91 0.59 6.80 23
Spain 11.33 –16.57 27.89 1.68 6.85 23
Turkey 30.54 –29.97 60.51 6.75 15.54 23
Source: own calculation based on GI Database.
Figure 4.6a. Gross capital formation in CECs in 1990–2011 as percent of GDP Source: WDI Database
Figure 4.6b. Gross capital formation in Poland and in SECs in 1990–2011 as percent of GDP
Source: as in Figure 4.6a 10
20 30
1990 1994 1998 2002 2006 2010
Czech Republic Hungary Slovak Republic Ukraine
10 20 30 40
1990 1994 1998 2002 2006 2010
Poland Greece Portugal Spain Turkey
Th e foundation of investment and a precondition for a long-term sustainabil-ity of the macroeconomic equilibrium is an adequate supply of domestic savings.
Domestic savings in Poland and the compared countries were lower than internal demand for funds. Th is meant that in the whole period (with temporary excep-tion of Ukraine) these countries were net borrowers. Th is trend triggered struc-tural current account defi cits (see Section 4.3.3).
Supplementary source of funds and an important element in the reconstruc-tion and modernizareconstruc-tion of the economies was the infl ow of foreign direct invest-ment (FDI) (Figures 4.7a and 4.7b). FDI suppleinvest-mented the domestic capabilities to invest [Drahokoupil 2008]. In CECs the infl ow of net foreign direct investment (net FDI) as a percentage of GDP was very high. Th e highest volatility of net FDI was registered in Hungary (Figure 4.7a). Also the Slovak Republic – a country with a signifi cant infl ow of large investments in the automotive industry [Stępniak 1998] recorded signifi cant fl uctuations of net FDI (from 0.6% of GDP in 1997 to almost 12% of GDP in 2002). During 1990–2011, the average scale of net FDI in Poland, Ukraine and the Czech and Slovak Republics was around 3% of GDP and it was signifi cantly higher in Hungary (9.0%) (Figure 4.7a). FDI infl ow was a crucial element in the reintegration of the countries with the European and global markets by aff ecting both the supply and demand sides of the transition economies. In SECs (Figure 4.7b) the fl uctuations of net FDI were visibly lower than in the CECs. Against this background Poland’s situation was much similar to the group of SECs than the CECs. Average net FDI was the lowest in Greece (0.84% of GDP) and Turkey (1.13% of GDP). Interestingly, over the entire period, Greece, Spain and Poland enjoyed relatively the most stable net FDI.
Table 4.7. Descriptive statistical parameters for gross capital formation in the CECs and SECs in 1990–2012 (% of GDP)
Country
Czech Republic 33.77 21.75 12.02 27.51 2.82 10.26 22
Hungary 27.65 15.51 12.14 22.83 3.20 14.03 22
Poland 25.26 14.41 10.85 20.74 3.16 15.26 21
Slovak Republic 34.28 19.89 14.39 27.47 4.10 14.91 22
Ukraine 36.29 17.06 19.23 24.14 5.42 22.44 22
Greece 26.53 14.53 12.00 22.38 3.04 13.59 22
Portugal 28.71 17.43 11.29 24.22 2.87 11.83 22
Spain 30,98 20.87 10.11 25.29 3.09 12.20 22
Turkey 26.62 14.94 11.68 21.21 3.07 14.47 22
Source: own calculation based on WDI Database.
Figure 4.7a. Foreign direct investment in the CECs, net infl ows as % of GDP Source: WDI Database
Figure 4.7b. Foreign direct investment in Poland and the SECs, net infl ows as % of GDP
Source: as in Figure 4.7a –5
0 5 10 15
1990 1994 1998 2002 2006 2010
Poland Czech Republic Hungary Slovak Republic Ukraine
n 52,05
p –16,07
0 5 10
1990 1994 1998 2002 2006 2010
Poland Greece Portugal Spain Turkey