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

Abstract

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.

Keywords:

• State-building
• judiciary
• bureaucracy
• competition
• economic development
• economic integration
• European Union
• Central Europe
• Eastern Europe

Acknowledgements

The authors would like to thank Philipp Chapkovski, Gabor Oblath, Istvan Schindler and Peter Vakhal for their valuable comments. In addition, we have received valuable feedback from participants of seminars at the Bank of Lithuania, at the European Commission and at the International Monetary Fund. Finally, we would like to thank for great comments to the anonym referees.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The final decision regarding membership was a political one; it did not solely depend on the Commission’s evaluations of institutional change.

2 The UN dataset is available at http://comtrade.un.org/data/

3 Other classifications include Eurostat (2005), and OECD Science, Technology and Industry Scoreboard (2007).

4 As a first step, we downloaded the product-level data: a 3-digit level breakdown of exports of goods imports of goods by the 4th revision of the Standard International Trade Classification (SITCr4) from the beforementioned UN database. This could be directly transformed into Lall’s (2000) technology breakdown. Nevertheless, Peneder’s (2001) skill structure is based on the Statistical Classification of Economic Activities in the European Community (NACEr1.1). Hence, several transformation steps were needed; notably, the SITCr4 breakdown we converted into Central Product Classification version No. 2 (CPCv2), which we retransformed into Central Product Classification version No. 1.1 (CPCv1.1). The next step was a retransformation into Rev 3.1 of the International Standard Industrial Classification of All Economic Activities (ISICr3.1), which we finally converted into NACEr1.1.

5 Wherever possible, we controlled our variables with others that were similar. The institutional variables linked to democracy and bureaucracy used in this paper show a robust correlation with those used in the Varieties of Democracy project (Staffan et al., 2018).

6 Coders – all of them doctoral students with European integration training – used Atlas.ti dedicated software to create a high degree of inter-coder reliability. Two coders simultaneously and independently coded each chapter. In cases of disagreement between coders, a third coder was brought in to make the final judgment. The use of the Atlas.ti software has the advantage of increasing the transparency of the coding process because it allows the researcher to review the coding and discern why a country received a specific score. This increased the inter-subjectivity of the data. Data codebook is available online (Bruszt & Munkacsi, 2016).

7 More information is available on the following website: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD

8 More information is available on the following website: https://mgmt.wharton.upenn.edu/profile/henisz/.

9 More information is available on the following website: http://data.worldbank.org/indicator/NE.CON.GOVT.ZS.

10 More information is available on the following website: http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS.

11 More information is available on the following websites: http://info.worldbank.org/governance/wgi/#home, http://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS, and http://info.worldbank.org/governance/wgi/#home

Additional information

Funding

Research for this contribution has been supported by the Seventh Framework Programme of the EU (project 320115 ‘Maximizing the Integration Capacity of the European Union: Lessons and Prospects for Enlargement and Beyond’ [MAXCAP]).

Notes on contributors

László Bruszt

László Bruszt is a professor of Sociology at the Central European University (Budapest). His more recent studies deal with the politics of market integration. His latest publications include Leveling the Playing Field – Transnational Regulatory Integration and Development, Oxford University Press (co-edited with Gerald McDermott); ‘Varieties of Dis-embedded Liberalism EU Integration Strategies in the Eastern Peripheries of Europe’, Journal of European Public Policy (with Julia Langbein); and ‘Making states for the single market: European integration and the reshaping of economic states in the Southern and Eastern peripheries of Europe’ West European Politics (with Visnja Vukov).

Ludvig Lundstedt

Ludvig Lundstedt is a political scientist and currently works for the Swedish Municipal Workers’ Union. He obtained his MSc at the London School of Economics in 2012 and his PhD in Social and Political Science from the EUI in 2017. Among his research interest is the political economy of reform. Ludvig is currently working on wage formation and labor market policy in the Swedish public sector.

Zsuzsa Munkacsi

Zsuzsa Munkacsi is an applied macroeconomist who works for the International Monetary Fund. She obtained a PhD in Economics from the European University Institute in 2016. Prior to joining the Fund, she has worked for several policy institutions, including the former Office of the Fiscal Council of Hungary, the Bank of Lithuania and the European Central Bank (external advisor). Her research deals with macro-structural issues, such as labor market reforms, demographics, retirement and diversification – with a focus on their macroeconomic relevance.