Hurdling through the great recession: winners and losers among post-communist EU countries in pro-poor growth

Abstract

The paper aims to evaluate the distribution of economic growth between poor and non-poor in the eight post-communist countries which joined the European Union in 2004. As if the integration process did not pose its own challenges, the overall situation was complicated by the outbreak of the financial and economic crisis in 2009. To address these factors, three periods are examined: the pre-crisis period of 2005–2009, the crisis period of 2010–2013, and the entire period spanning 2005–2013. The methodology applied in analyzing the pattern of pro-poor growth is based on the “poverty equivalent growth rate” approach. Additional insight was obtained from ranking the countries examined based on this growth rate as well as related measures. Interestingly, Hungary and Slovenia appear to be more prone to propagation of growth changes to the incomes of the poor relative to the other countries examined. This had negative repercussions for the poor as negative growth was a hallmark of the crisis period. Our results also show that the substantial growth during the post-accession period up until the crisis was not pro-poor in an absolute sense in any of the countries under examination.

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Fig. 1

Source: Authors’ calculations based on data from EU-SILC. Note: The vertical axis represents income growth during the period observed, and the horizontal axis describes particular percentiles of the population. The horizontal line represents mean growth of equivalised income in particular period

Notes

  1. 1.

    Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovenia and the Slovak Republic.

  2. 2.

    The impact of reforms and institutional changes on poverty and inequality has been reviewed by Aristei and Perugini (2012, 2014), Romano (2014) or Milanovic and Ersado (2011).

  3. 3.

    Bartošová and Želinský (2013) discuss the existence of poverty during communism. They point out, with reference to Večerník (1991), that research on poverty during communist times did not exist, and if so, was prohibited.

  4. 4.

    After accession to the EU, almost all of the countries surveyed reported higher growth in GDP than that which pertained prior to accession, Hungary being the sole exception. Estonia, Latvia, Lithuania and Slovakia, within a few years, grew more than 10% annually (for more details see Table 1).

  5. 5.

    The poverty line is defined as 60% of median real income calculated from the EU-SILC database.

  6. 6.

    A different approach to measuring the pro-poor nature of economic growth, called “poverty growth curve”, was proposed by Son (2004).

  7. 7.

    The European Commission calls for better quality data and new indicators to complement the standardly used GDP in its communication “GDP and beyond—Measuring progress in a changing world” from 2009. An important objective of social and economic cohesion is the reduction of disparities between social groups (European Commission 2009). Therefore, the measurement of distribution and inequalities became an important point in the Beyond GDP agenda.

  8. 8.

    Datasets: EU-SILC UDB 2005—version 5 of August 2009, EU-SILC UDB 2006—version 4 of March 2010, EU-SILC UDB 2007—version 6 of August 2011, EU-SILC UDB 2008—version 7 of March 2015, EU-SILC UDB 2009—version 7 of March 2015, EU-SILC UDB 2010—version 6 of March 2015, EU-SILC UDB 2011—version 5 of March 2015, EU-SILC UDB 2012—version 1 of January 2016, and EU-SILC UDB 2013—version 3 of January 2016.

  9. 9.

    Denoted as HX090 in the EU-SILC database. Households with negative values of equivalised disposable income were considered an outlier and, therefore, were excluded from the analysis.

  10. 10.

    Adjusted cross sectional weights (RB050a) were computed following the methodology presented by the Eurostat (2018).

  11. 11.

    The growth rate between 2009 and 2010 is included only in the entire period.

  12. 12.

    For more details see the “Appendix”.

  13. 13.

    Let’s suppose two different instances of growth in the periods t and t + 1, while in both considering a population of only two people. In the first scenario, the poor person has an income equal to 1 Euro and the non-poor person’s income is 10 Euros. In such scenarios, the growth of income of the non-poor by 100% results in t + 1 income equal to 20 Euros. Achieving relative pro-poor growth requires growing the income of the poor by more than 1 Euro (100%). However, achieving absolute pro-poor growth requires the income of the poor to increase by more than 10 Euros, i.e. the income of the poor should increase by more than 1000%. In the second scenario, we suppose the same situation as before but with a low level of growth of a non-poor person equal to 5% (which is 0.5 Euros). In such a case, achieving absolute pro-poor growth would mean an increase of the income of the poor by more than 0.5 Euros which is more than 50%. This situation is far more likely to be achieved than the previous one. In addition, it is necessary to mention that the example presented assumes a high level of inequality which further hinders the achieving of absolute pro-poor growth compared to the situation with a lower level of inequality. Therefore, one might argue that higher inequality countries can have lower chances of achieving pro-poor growth. This is in line with the argumentation of Besley and Cord (2006) who claim that the pace how growth is translated to poverty reduction is negatively affected by inequality.

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Acknowledgements

The authors would like to thank for helpful comments and suggestions to two anonymous referees. The authors also acknowledge support from APVV (Slovak Research and Development Agency) research program, under Project No. 14-0787 and VEGA (Scientific Grant Agency of the Ministry of Education, Science, Research and Sport of the Slovak Republic and of the Slovak Academy of Sciences), under Project No. 2/0158/18.

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Appendix

Appendix

Appendix 1

See Table 6.

Table 6 Growth of mean equivalised disposable income based on EU-SILC data

Appendix 2

See Table 7.

Table 7 Ranking of countries based on relative pro-poor growth index according to Kakwani’s and Son’s approach

Appendix 3

See Table 8.

Table 8 Ranking of countries based on relative pro-poor growth index adjusted by multiplication by − 1 in case of negative growth according to Kakwani’s and Son’s approach

Appendix 4

See Table 9.

Table 9 Ranking of countries based on PEGR index according to Kakwani’s and Son’s approach

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Domonkos, T., Ostrihoň, F. & König, B. Hurdling through the great recession: winners and losers among post-communist EU countries in pro-poor growth. Empir Econ 60, 893–918 (2021). https://doi.org/10.1007/s00181-019-01773-7

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Keywords

  • Post-communist countries
  • Poverty
  • Pro-poor growth
  • EU Accession

JEL Classification

  • C10
  • I32
  • O15
  • P20