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SOURCES OF POLAND’S ECONOMIC SUCCESS IN THE TRANSITION PERIOD IN THE LIGHT OF THE RESEARCH LITERATURE

Oleksiuk Adam

Ph.D., Assistant Professor

University of  Warmia and Mazury

Olsztyn, Poland

 

SOURCES OF POLAND’S ECONOMIC  SUCCESS  IN THE TRANSITION PERIOD IN THE LIGHT OF THE RESEARCH LITERATURE

 

One of the key sources of Polish success were rapidly implemented economic reforms. Introduced on 1 January 1990 the package of 10 laws – which of the so-called. Balcerowicz plan was made up- was clearly subordinated to the overall economic transformation. As a result of these (and subsequent) reforms Poland quickly regained sustained macroeconomic balance (including the elimination of hyperinflation), which was crucial for future economic growth. As it was pointed out by Aslund, of fundamental importance for the Polish reforms was their speed and versatility. Thanks to this, Poland was the first country that the following the transition returned on the path of sustainable growth. In many areas Poland was the leader of change.

An extremely important role was played by comprehensive and radical nature of the reforms at the beginning of the Polish transformation. Their simultaneous introduction allowed to achieve synergy, while their radical nature made it possible to overcome the rising inflation expectations . Furthermore, the rapid and decisive implementation of reforms was necessary because of the risk of strong rent-seeking  and in order to assure greater social acceptance for reforms . Rapid changes also led to sooner changes in the inefficient structure of the economy and, consequently to higher economic growth in the long term. Analysis of economic performance after 1989 reveals that discipline and the pace of implementation of measures aimed at stabilizing the economy allowed for better effects in terms of other reforms and of economic growth.

The development of the private sector was also highly important. According to some estimates, in 1989. almost 400 thousand. new businesses were established in Poland, and in 1990-1992, an average of 250-300 thousand civil partnerships were added per year coming. The growing number of new private enterprises explains the rapid growth of the private sector’s share in Polish GDP (47.5% of GDP in 1993., 58.7% in 1997) despite slow privatization of state-owned enterprises (Gomulka, 2014). Because private companies are more efficient than state-owned enterprises, private sector’s development constituted an important engine of economic growth.

Since the beginning of transformation Poland grapples with persistent fiscal deficits, and the entire 1990s were a period of high inflation. At the same time thanks to prudent monetary policy, zloty became fully convertible, and Poland, in contrast to other countries in the region, avoided currency crises. Moreover, on account of low, compared to other countries in the region, credit expansion on the part of commercial banks Poland was able to avoid significant cyclical fluctuations and financial bubbles.

Stable macroeconomic environment encouraged investments in Poland. Since the mid 1990s. foreign capital started to flow more intensively to Poland. According to UNCTAD data since 1996. Poland’s maintains has a larger share of the global foreign direct investment flows than countries in the region, which is quite natural given the larger size of its economy. However, it should be noted that the share of FDI in GDP in the period 1990-2014 was generally lower than in Hungary or Estonia and to this day remains below the average for the region. Foreign investment were conducive to a better use of capital and higher labor productivity. The rapid liberalization of foreign trade is listed as one of the causes of Poland’s dynamic economic growth. Thanks to this the degree of openness of the Polish economy to international trade has become in the last quarter higher than in case of many economies with similar size of the domestic market. This attests to the relative competitive advantage of the Polish economy. This increase is particularly significant if the simultaneous expansion of exports taking place in China is taken into account. Trade liberalization has also expanded the availability of goods and services on the Polish market, as well as strengthened competition and pressures on domestic companies’ restructuring.

According to Lehmann (2012) the maintaining of a high pace of economic changes resulted from Poland’s aspirations to enter the European Union on the earliest possible date.. This necessitated the implementation of institutional and structural reforms required by the EU. Belka points out to the positive role of the EU accession in economic growth, listing such factors as the benefits of the single market and the inflow of foreign direct investment, emigrants’ remittances and the EU funds. In this context the importance of the EU funds shouldn’t be overestimated – in the long run their impact on the economy is not unambiguously positive, and it can even be downright negative. The literature on economic integration indicates far more important growth-enhancing mechanisms than the aid funds, such as increased market openness, greater competition and the influx of new technologies. Čihák and Fonteyne (assess that the Poland’s EU membership resulted in the additional average GDP growth rate being higher by 1-2.5 percentage points in the period 2003-2007, and Campos et al. estimate that the level of GDP was by 6% higher in the period 1998-2008 thanks to the EU funds.

Redeployment of the factors of production such as labor and capital across sectors (from agriculture and industry to services) resulted in productivity increases. Equally important were the changes within sectors (from mining to manufacturing), as well as from state-owned enterprises to private ones. As a result, the productivity of the Polish economy grew, according to the Conference Board, in the period 1990-2014 by 235%. Labour productivity per hour increased in Poland from less than 30% in 1990 of the level observed in Germany to slightly below 50% of the Germany’s level in 2014. This result is much worse than recorded in Estonia, which has already reached 80% of the Germany’s level, but the growth rate in productivity is significantly higher than in Hungary or in the Czech Republic. Compared with Germany, lower productivity per hour worked is partially compensated by longer working time (by almost 50%), which causes the productivity per worker to reach 70% of the Germany’s level. However, to raise productivity per hour worked will be the key to further economic growth.

 

References

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