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Slovak Economy and Agricultural Transition in CEE

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Short history. Between 1918 and 1992 Slovakia was a ... Short economic history ... 1989 The Fall of Berlin Wall collapse of communist regimes in CEE and FSU ... – PowerPoint PPT presentation

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Title: Slovak Economy and Agricultural Transition in CEE


1
Slovak Economy and Agricultural Transition in CEE
  • Ján Pokrivcák
  • Department of Economics
  • Slovak Agricultural University in Nitra
  • Slovakia

2
Objectives
  • To provide an overview of the Slovak Economy,
    its development, current state and comparison
    with other countries first part.
  • To provide an overview of agricultural
    transition in Central and East European countries
    second part.

3
Slovak Republic
Area 49 036 km2 Population 5.4 million Pop.
density 109 per sq km Pol. system parl.
democracy Ethnicity of the population Slovak
(86) Hungarian (10), Romany (2), Czech (1),
Rusyn, Ukrainian, Russian, German, Polish and
others(1) GNI per capita (2005) US 7,600 GDP
growth (2006) 8.2

4
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5
Short history
  • Between 1918 and 1992 Slovakia was a part of
    former Czechoslovakia.
  • Between 1948 and 1989 Czechoslovakia was a
    communist country.
  • Slovakia achieved its independence following the
    breakup of Czechoslovakia in 1993.
  • On May 1, 2004, Slovak Republic, along with the
    other nine countries, became a member of the
    European Union.

6
Short economic history
  • During communist times Czechoslovak economy
    became technologically backward,
    undercapitalized, isolated from the most
    developed economies in the world (years 1948
    1989).
  • Poor economic performance and lagging behind the
    West was one of the reasons for the collapse of
    communist system.
  • Initial decline of output caused by destruction
    of old socialist institutional structure which
    was being slowly replaced by new market oriented
    formal and informal institutions. (years 1990
    1992)

7
Short economic history
  • Liberalization of the economy and transformation
    into market system resulted in economic growth.
    (93 97)
  • Lack of further reforms and built up of
    inefficiencies in private and public sectors
    slowed down economic growth and brought about
    fiscal tightening (99 01)
  • After 1998 new government came with significant
    economic reforms (pension, tax, labor, …).
  • Reforms and EU accession stimulated economic
    growth (02 current time).

8
GDP Growth in Slovakia
9
GDP growth and unemployment rate
10
Current economic performance
  • Currently, Slovakia is a fast growing economy
    with GDP growth of 8.3 in 2006, above 9 in
    2007 so far.
  • Unemployment rate remains high but declining (9.4
    percent end of 2006), 8.9 end of Q1 2007.
  • There are regional differences in unemployment.
    Highest rates in the East, lowest in the West
    around capital of Bratislava

11
Structure of Economy
12
  • In the world perspective, The Slovak Republic is
    an upper middle income country with a Gross
    National Income per capita of US 7,600 in 2005.
  • In European perspective, Slovakia achieves about
    55 of average income of 25 countries of the EU

13
GDP per capita in 2005 in PPS EU25100
14
Size of the market
Note GDP adjusted by Purchasing Power Parity,
2004 data. Source EUROSTAT
15
Productivity comparison GDP per hour worked
Germany 100
Source OECD
16
Working habits Hours worked per year
Source OECD
17
Education of population 25-64 having completed
at least upper secondary education
Source Eurostat, 2002 data
18
Economic freedom
Source The Heritage Foundation and Wall Street
Journal, Index of Economic Freedom.
The lower the value, the greater the economic
freedom.
19
Doing business
The smaller the number, the better
Source World Bank, Doing Business 2006
20
Labor market
The smaller the number, the better
21
Informal economy of GNI
22
FDI inflow
23
FDI inflow CE comparison
24
Most attractive sectors in CE in the future
according an ErnstYoung Survey
25
Hourly labor costs in EUR
26
Corporate profit taxation
27
Personal tax rate
28
Governments role in the economy revenues as of
GDP
29
Governments role in the economy, EU
comparison revenues as of GDP
30
Adoption of EURO
31
Economic growth
32
Unemployment rate
33
Material distress
Note People in material distress include
unemployed as well as people on social benefits
that qualify. Material distress is defined as
income below life minimum. However, the number of
the poor is greater as the data does not include
low income people (such as pensioners, etc). Some
estimates put the poor at 10 instead of 7 in
2005. Source Ministry of Labour
34
Tax reform
Taxes change peoples preferences. To have
minimal impact everything is taxed with the same
tax rate, flat tax. In Slovakia, income (both
personal and corporate, interest, etc) and
normal consumption is taxed at 19. Dividend
tax is zero, no real estate transfer or gift
tax. Separate social policy and tax policy.
35
Agricultural Transition in CEE
36
Introduction
  • In communist countries (before 1989) all economic
    activities directly regulated by state, the whole
    economy like a single firm.
  • Central planners set
  • What firms have to produce
  • Trade flows among companies
  • Allocation of resources among companies
  • Prices set centrally and did not send right
    signals to producers and consumers.

37
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38
Introduction cont.
  • Agriculture centrally regulated too.
  • Land and farms (cooperatives) de facto owned by
    state. Decisions made centrally.
  • Land concentrated into large cooperatives.
  • Average farm size 1 457 ha in Poland 124 770 ha
    in Turkmenistan.
  • Farm size in market economies (USA, EU, …) much
    smaller.

39
Farm size during communism
40
Farm size in market economies
41
Introduction cont.
  • 1989 The Fall of Berlin Wall collapse of
    communist regimes in CEE and FSU
  • Transition from centrally planned economy to
    market economy.
  • Transition involves institutional change (change
    of rules of the game in the form of laws,
    regulations, property rights, norms, …).
  • Institutions constrain behavior of individuals
    and through this have impact on productivity of
    the economy.
  • Market institutions support private incentives.
    Communist institutions hinder private incentives.

42
Introduction cont.
  • Transition of agriculture involves
  • Privatization
  • Farm restructuring
  • Price liberalization
  • Formation of market institutions

43
Privatization
  • During communism land and cooperatives owned by
    state. State ownership inefficient. Incentives to
    work higher in the case of private ownership of
    resources.
  • To increase efficiency property rights
    transferred from state to private hands
    privatization.
  • Privatization in agriculture
  • Privatization of land
  • Privatization of assets of cooperatives and state
    farms

44
Privatization cont.
  • Privatization of land in FSU and CEE
  • Restitution to former owners
  • Distribution to farm workers
  • Combination of restitution and distribution
  • Restitution to former owners
  • Land restituted to owners from before
    nationalization and collectivization. Historical
    injustice caused by communism undone.
  • Restitution took place in CEE (except Albania)
    and in Baltic States.
  • Restitution feasible because nationalization and
    collectivization took place in recent past (after
    WWII), documentation exists and former owners or
    their children still alive.

45
Privatization cont.
  • Distribution of land among farm workers
  • Land distributed among farm workers in order to
    create equitable land ownership.
  • Applied in FSU and Albania.
  • Restitution infeasible in FSU because of search
    costs, missing documentation. Communist regime
    introduced in FSU after WWI.
  • Combination of distribution and restitution
  • Some land restituted to former owners and some
    land distributed among farm workers.
  • Applied in Hungary and Romania.
  • In some countries (Byelorussia, Kazakhstan,
    Turkmenistan) privatization very limited.

46
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47
Privatization cont.
  • Privatization of farm assets
  • Privatized by restitution and distribution.
  • Restitution served to undo former injustice while
    distribution compensated workers for their
    contribution to farm surpluses created and
    invested back into cooperatives.

48
Farm restructuring
  • During communism cooperatives and state farms
    centrally managed. Farms had to fulfill central
    plan.
  • Restructuring aim was to transform farms such
    that they would react to market signals (prices
    and competition).
  • Two approaches to restructuring
  • New owners could withdraw land from cooperatives
    (cooperatives could be dissolved) and establish
    family farm, these are the farms prevalent in
    developed market economies.
  • Remaining cooperatives transformed. Communist
    cooperatives changed into cooperatives of owners
    of property, joint stock companies or limited
    liability companies.

49
Farm restructuring cont.
  • During restructuring process the average farm
    size declined.
  • In Slovakia, Czech Republic and in most FSU
    countries there are transformed cooperatives
    after restructuring.
  • In Albania, Baltic States family farms are
    dominant.
  • Both types of farms present in other countries.

50
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51
Price liberalization
  • Prices are important in market economy. Prices
    provide signals to market participants how scarce
    commodities are.
  • High price may signal high demand. Profit
    maximizing firms therefore increase production.
    Firms allocate resources to goods with the
    highest demand which results in efficient
    allocation of resources.
  • In communism prices regulated by the state.
    Prices actually used only as an accounting tool
    to monitor state owned firms. Communist regimes
    therefore created surpluses of some goods and
    shortages of other goods.

52
Price liberalization cont.
  • Price liberalization was an integral part of
    reforms.
  • Generally price liberalization lead to increase
    of price level.
  • The highest increase of prices observed for
    agricultural inputs while prices of agricultural
    outputs increased less. The reason was shortage
    of inputs and surplus of outputs prior to
    liberalization.

53
Development of prices in Slovakia
54
Development of prices in Hungary
55
Development of prices in Russia
56
Formation of market institutions
  • Former communist countries had to create
    institutions supporting market system.
  • They include the creation of safe private
    ownership rights, regulations supporting
    competition and contract enforcement.
  • Many countries, especially FSU, adopted laws
    preventing sales and renting of land which laead
    to inefficient allocation of resources.

57
Formation of market institutions cont.
  • Some countries lacked full definition of
    ownership rights.
  • For example, in FSU new owners received shares of
    cooperatives not entitlement to a particular
    parcel. Direct relationship between land and
    individual was not created.
  • Better informed managers could constrain rights
    of less informed owners.
  • There was less of the problem in CEE.

58
Formation of market institutions cont.
  • In overall, in CEE and Baltic States ownership
    rights and law enforcement was stronger than in
    FSU.

59
The impact of transformation on agricultural
production
  • All transition countries experienced the fall of
    agricultural production in the first years of
    transition.
  • After 4 years of transition agricultural
    production decreased by 40 in Baltic States, 30
    in FSU, and by 20 in CEE.
  • The initial fall reflected the destruction of the
    old system of exchange of commodities while the
    new system was just being implemented.
  • After the initial fall stabilization ensued.
    Production in many countries started to rise. The
    biggest increase occurred in Albania, Slovenia
    and Romania.

60
The impact of transformation on agricultural
production cont.
  • Agricultural production reached pre 1989 level
    only in Albania, Slovenia, and Romania.
  • In FSU decline of production was bigger than in
    CEE and the subsequent rise smaller. The reason
    is that property rights were better defined and
    law enforcement was stronger in CEE. Agricultural
    resources were therefore more efficiently used in
    CEE than in FSU.

61
Development of agricultural production in
transitive countries
62
Growth of GAO in Transition Countries (index
equals 100 in first year of reform)
63
Growth of ALP (Output per Farm Worker) (index
equals 100 in first year of reform)
64
Growth of Input Use Indexes in Transition
Countries (index is 100 in first year of reform)
65
Growth of Index of Agricultural Yields in
Transition Countries (100 in first year of reform)
66
Thank you for your attention
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