30 Years of Socio-Economic Developments in Central and Eastern Europe

This presentation looks back at 30 years of development in Central and Eastern Europe (CEE) since the fall of the Berlin Wall in 1989. It traces how the countries from the former communist bloc developed on a variety of economic and social indicators, including wealth, unemployment, inequality, productivity, child mortality, life expectancy, and more. Looking back over a period of 30 years gives us a chance to appreciate the enormous achievements that these countries have accomplished, despite the many political and other challenges they faced. Many of these countries still suffer from endemic problems with corruption, weak rule of law, and state capture. But they have also gone through enormous social and economic transformations that brought their economies and societies much closer to the standards in Southern, Western, and Northern Europe than anyone dared to hope back in 1989. The reforms behind the social and economic convergence of the CEE region to the rest of the European Union (EU) came at a huge social costs: mass emigration from the region, inadequate social safety nets, minimal care for the old and disadvantaged. There are real problems that cannot and should not be ignored. But the overall message that appears from the data presented in the graphs below is one of success and optimism about the power of the people to build modern economies and relatively wealthy societies over a period of 30 years.

Let us first look at wealth, measured with GDP per capita (adjusted for purchasing power to enable comparisons across states and standardized in 2011 international dollars to enable comparisons over time). The graph compares the trajectory of GDP per capita for 12 countries from CEE to the one of Greece, one of the poorest members of the EU, but still a country that had a much higher level of GDP per capita back in 1989. The figure shows that 8 of the 12 countries have already surpassed Greece, with Romania, Croatia and Bulgaria catching up as well. And while Greece has not had a consistent pattern of growth over the past 30 years, it is not the only country in the EU that the CEE have managed to catch up with in terms of wealth.



The second graph groups the CEE into two sets: four countries from the Balkans into South Eastern Europe and seven others into a Central Eastern Europe, and compares them to a group of Northern, Western, and Southern European states. In the graph, the line for each group of countries is the average of the countries weighted by their population (so that more populous countries contribute more to the group average). The graph shows that Central Eastern Europe in particular is getting close to the level in Southern Europe, but the gap with Western and Northern Europe remains. Still, if back in 1989 Western Europe was more than twice as wealthy as CEE, in 2018 the difference is less than 50%. It is also noteworthy that a sizable gap has opened between Central Eastern Europe - the Baltics and the Visegrad four (Poland, Hungary, Czechia and Slovakia) and South Eastern Europe (and the gap will only be bigger if Slovenia is excluded from the latter group and the other Western Balkan states are added). Yet, even South Eastern Europe has experienced almost continuous growth since 1992: no small achievement in itself.

Next, we look at unemployment, where the performance of the CEE region is even more remarkable. The first graph in this set again compares the performance of 12 CEE countries against that of Greece. With the exception of Serbia, all other CEE states have achieved significantly lower levels of unemployment that Greece. Despite many ups and downs during the 1990s and early 2000s, unemployment has stabilized at rather low levels in the region after 2010.



A comparison with the development in Southern Europe speaks for itself, especially after 2010. But, quite amazingly, Central Eastern Europe has reached and kept lower unemployment levels than Western and Northern Europe since 2016, and even South Eastern Europe has a slightly lower level than these two regions in Europe as of 2018.



Unemployment figures can be misleading as they only count persons who are officially unemployed. Therefore, we should look at actual employment (share of employed to population) and the labor force participation rate. Looking at these indicators, CEE still does quite well and better than Southern Europe, but Western and Northern Europe come on top.

One aspect of economic development on which the CEE region has still a lot of catching up to do, even compared to Southern Europe, is productivity, or GDP per person employed.

Much of the economic growth in the region has been led for foreign investment that has gone into export-oriented sectors. As a result, CEE has remarkable levels of exports (as a share of GDP) that surpass even those of Northern and Western Europe

Moving on to social issues, let us look at economic inequality first. After all, if this economic growth has come at the expense of skyrocketing inequality, it is not worth that much to the people in the region. But, in fact, inequality levels (as measured by the GINI coefficient) have not risen that much (at least since 2003, when we start to have comparable data), and are well within the range of observed inequality in Western and Southern Europe.



Another aspect of social inequality and indicator of a well-functioning society is poverty, and the share of the poor in society. Here again, Central Eastern Europe has achieved tremendous success, reducing the share of people in poverty (living on less than $1.90 per day) to less than 1% (and less than 5% living on less than $5.50). The picture is more bleak in South Eastern Europe, but even there the share of people in poverty is less than 5% (at the $1.90 mark) and about 20% (at the $5.50 mark).

But perhaps the most uplifting graph is the one tracing the drop in child mortality throughout the CEE region: Central Eastern Europe has essentially converged to Western European standards, and even South Eastern Europe has reduced its child mortality rate more than three-and-a-half times.



Looking at life expectancy, however, there is still a sizable gap that remains between the CEE region and the rest of the EU, despite many years of progress. The gap is present for women, but it is even wider when it come to men.

In conclusion, the former communist countries from Central and Eastern Europe have achieved remarkable economic growth and social development in the 30 years since the fall of the Berlin Wall. They have built modern, export-led economies that have lifted their levels of economic wealth above some EU member states in Southern Europe and have brought them closer to the standards in the West and the North of the continent. Moreover, these economies sustain a relatively high level of employment and low levels of unemployment. Poverty has been markedly reduced, and inequality has stabilized at levels comparable to the rest of the EU states. Child mortality has been drastically reduced, and life expectancy has increase, even if it is still far from the Southern European benchmarks. To be sure there are significant problems that remain: looming demographic crises in many of the CEE countries, ongoing challenges to liberal democracy and the rule of law, and corruption. And not everyone in the region has benefitted to the same extent from the economic transformations. But these problems should not overwhelm the big picture, which is one of success.

About

This presentation has been put together by Dimiter Toshkov and last updated in November 2019. The presentation is based on data from the World Bank. For details on the data and code for the extraction, aggregation and visualization, see the GitHub page of the project. If you end up using the presentation or the data, please provide the following reference:
Toshkov, D. (2019) '30 Years of Socio-Economic Developments in Central and Eastern Europe', Online presentation, Available at: http://www.dimiter.eu/Visualizations_files/CEE.html