Kan , Chande
A icle
EU accession, ins i u ional change, g ow h, and human
capi al
Economies
P o ided in Coope a ion wi h:
MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel
Sugges ed Ci a ion: Kan , Chande (2025) : EU accession, ins i u ional change, g ow h, and human
capi al, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 13, Iss. 6, pp. 1-21,
h ps://doi.o g/10.3390/economies13060177
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Ci a ion: Kan , C. (2025). EU
Accession, Ins i u ional Change,
G ow h, and Human Capi al.
Economies,13(6), 177. h ps://doi.o g/
10.3390/economies13060177
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A icle
EU Accession, Ins i u ional Change, G ow h, and Human Capi al
Chande Kan
Depa men o Economics and Legal S udies, Se on Hall Uni e si y, Sou h O ange, NJ 07079, USA;
chande [email p o ec ed]
Abs ac : The e ec s o ini ial ins i u ions and change in ins i u ions on he g ow h o
ex-socialis coun ies is unse led in he li e a u e. This is due o di icul ies in modeling he
e ec s o ins i u ions and hei change. The objec i e o his pape is o con ibu e o his
a ea. Ex-socialis coun ies aced he e ogenous ini ial condi ions a ansi ion. Those ha
joined he EU expe ienced ins i u ional in eg a ion as well as ins i u ional imp o emen .
Using publicly a ailable da a om abou en yea s be o e and a e EU accession and wo-
way ixed e ec s di e ences-in-di e ences es ima ion, his pape inds ha hese coun ies
expe ienced g ow h boos s pos -EU accession. Achie ing ins i u ional in eg a ion cum
imp o emen by accep ing and implemen ing EU’s egula ions and no ms in all de ails
pe mi ed his boos . The ini ial condi ions ma e ed— he e ec was g ea e in “new”
ex-socialis coun ies (which had he addi ional bu den o c ea ing new adminis a i e
s uc u es and economic ela ionships) han in he “old.” Using he neo-classical g ow h
model, he pape hen examines whe he his boos in g ow h was due o a highe con i-
bu ion o inpu s o due o an inc ease in he e iciency wi h which inpu s we e used. I
indica es ha i was due o inc eased con ibu ion o human capi al a he han an inc ease
in he amoun o human capi al o o he economic o poli ical con ounde s. These coun ies’
skilled labo , al eady high in skills a ansi ion by OECD s anda ds, needed he igh
ins i u ions o unlock i s po en ial.
Keywo ds: ins i u ions; ex-socialis coun ies; EU accession; g ow h; human capi al
1. In oduc ion
The ole o ins i u ions in g ow h has been ecognized om he e y beginning o
economics. Smi h (1776) highligh ed he ole o he p o ec ion o p i a e p ope y in spe-
cializa ion and exchange and inno a ion and g ow h. Mau o (1995), and Knack and Kee e
(1997), and Hall and Jones (1999) we e among he i s o empi ically es ablish a ela ionship
be ween ins i u ions and g ow h. Rosenbe g and Bi dzell (1996) explain he c i ical link
be ween ins i u ions a o ing comme ce and he eme gence o co po a ions and he highe
income o Eu ope and he Wes . Mo ck e al. (2005) emphasize ha good ins i u ions in he
p i a e sec o a e impo an o g ow h. Compa ing he oles o ins i u ions, geog aphy,
and in e na ional ade in g ow h, Rod ik e al. (2004) ind he ole o ins i u ions o be
dominan . In hei su ey, Acemoglu e al. (2005) place ins i u ions as he cen al ac o o
g ow h. In e -coun y economic inequali y is o en asc ibed o di e ences in ins i u ions.
Al a o e al. (2008) show ha capi al does no low om ich coun ies o poo coun ies
due o he la e ’s poo ins i u ional de elopmen . This lack o capi al mo emen om
ich coun ies wi h low ma ginal e u ns o poo coun ies wi h p esumably high ma ginal
e u ns was i s poin ed ou by Lucas (1990) and came o be known as he Lucas Pa adox.
Papaioannou (2009) eaches simila conclusions as Al a o e al. (2008). C. J. Jones and
Rome (2012) highligh ou s a e a iables, namely ideas, popula ion, human capi al, and
Economies 2025,13, 177 h ps://doi.o g/10.3390/economies13060177
Economies 2025,13, 177 2 o 21
ins i u ions, as cen al o g ow h/de elopmen heo y. They model he i s h ee bu
e ain om modeling ins i u ions.
The objec i e o his s udy is wo old: The i s is o examine he ole o ini ial (say,
a - ansi ion) ins i u ions and a change in ins i u ions (say, upon joining he EU) in a ec ing
g ow h. Theo y expec s a posi i e e ec . The pape con i ms i o ex-socialis coun ies
ha joined he EU (using wo-way ixed e ec s DID es ima ion). The second objec i e is o
examine whe he he posi i e e ec was due o inpu s o due o he e iciency wi h which
hey we e used. Theo y makes no p edic ion. The pape es ima es a neo-classical g ow h
model by panel es ima ion sepa a ely o he pe iod be o e he said coun ies joined he
EU and a e accession o disco e whe he he s a is ical signi icance o he p oxima e
ac o s di e ed a e accession. The mo i a ion o he s udy is o con ibu e o he li e a u e
linking ins i u ions o g ow h.
Ten (EU10) ex-socialis coun ies joined he EU in he mid-2000s—eigh on 1 May
2004 and wo on 1 Janua y 2007. To analyze he e ec s o ini ial condi ions, his pape
di ides hem in o h ee g oups. The i s g oup consis s o Czechoslo akia, Hunga y, and
Poland, which ha e been so e eign coun ies since he Second Wo ld Wa and o med he
Viseg ád alliance in 1991. I s membe ship inc eased o ou a e he iendly b eak-up
o Czechoslo akia in 1993 in o he Czech Republic and Slo akia. These a e e e ed o as
“old” ex-socialis coun ies o he Viseg ád Fou (V4). They joined he EU on 1 May 2004.
The o he ou coun ies ha joined he EU on 1 May 2004—Es onia, La ia, Li huania,
and Slo enia—(ELLS) a e called “new” ex-socialis coun ies, ha ing eme ged as sepa a e
coun ies in 1990/1991 om he b eak-up o he So ie Union o Yugosla ia. Bulga ia
and Romania (B&R), which joined he EU on 1 Janua y 2007, a e conside ed a sepa a e
g oup due o hei la e accession o he EU and he lowe le el o ins i u ions in 1996 (1996
is he i s yea ha da a on ins i u ions is a ailable, p ecluding hei use in econome ic
es ima ion ha s a s om 1991. See, Wo ld Bank,2024).
The li e a u e e iew in Sec ion 2 e eals a ious sociological de e minan s o ins i u-
ions: he ex en o socialis eli es’ en enchmen (Beck & Lae en,2006), en seeking by he
eli e and powe ul in e es g oups (Melki,2022), he o ganiza ion o exchange in anspa en
e sus opaque business ne wo ks (Van Ees & Bachmann,2006), and us wi hin en e p ise
ne wo ks (Johnson e al.,2000). The ins i u ional in eg a ion o he ex-socialis coun ies
wi h he EU was unlike ea lie ounds o EU expansion (see Campos e al.,2019)— hese
coun ies had no been capi alis democ acies o a leas ou decades (mos ly since he
Second Wo ld Wa ). The p e-2004 EU (EU15) equi ed he EU10 o unde ake a ious
ins i u ional imp o emen s be o e he la e could join i . This pape examines whe he
joining he EU and adop ing i s no ms and s anda ds boos ed he g ow h o he ex-socialis
coun ies. Building on Bohle’s (2018) inding o ins i u ional de elopmen upon joining
he EU, his pape examines whe he Van Ees and Bachmann’s (2006) expec a ion ha he
change in ins i u ions upon joining he EU would lead o a boos in g ow h was ealized.
I examines his ques ion in he con ex o di e ing ini ial ad e se ins i u ions in he ex-
socialis coun ies ha joined he EU. Speci ically, i examines whe he coun ies wi h ini ial
low ins i u ion le els o hose bu dened wi h c ea ing ins i u ions due o eme ging as inde-
penden coun ies in 1990/1991 om la ge poli ical uni s had a g ea e gain. Fu he mo e,
i in es iga es whe he g ea e g ow h was d i en by one o mo e inpu s o he e iciency
wi h which inpu s we e used (TFP).
Penn Wo ld Tables (PWT) da a, a ailable a h p://www. ug.nl/ggdc/p oduc i i y/
pw accessed on 2 Janua y 2021, is used in he pape . The pape uses wo-way ixed e ec s
di e ence-in-di e ence (“TWFE DID”) es ima ion (see, e.g., Ashen el e & Ca d,1985) o
examine he e ec s o joining he EU on income and panel es ima ion o a neo-classical
g ow h model o disco e he p oxima e ac o (s) behind any g ow h e ec ound. This
Economies 2025,13, 177 3 o 21
pape add esses impo an ques ions: whe he an imp o emen in ins i u ions o ex-socialis
coun ies boos ed g ow h, how he boos may ha e depended on ini ial ins i u ions, and
he ela i e impo ance o inpu amoun s and TFP in a ec ing g ow h. The i s ques ion
has been examined o he 2004 Eas e n enla gemen o he EU by desc ibing EU accession
as ins i u ional in eg a ion (bu no ecognizing he ins i u ional imp o emen ) and using
he syn he ic con ol me hod (Campos e al.,2019). I achie es di e en esul s. The o he
wo ques ions (as a as he au ho knows) ha e no been examined.
In Sec ion 2below, he pape unde akes a e iew o he ele an li e a u e. Sec ion 3
desc ibes he DID model o es ima ing whe he EU accession boos ed g ow h and he
neo-classical g ow h model speci ica ion used o disco e he p oxima e causes o he e ec s
shown by he DID model. Sec ion 4explains he da a used, p esen s non-econome ic
analysis o DID g ow h a es, and examines dynamics. Sec ion 5es ima es he e ec s o EU
accession on income by a TWFE DID model and desc ibes ins i u ional changes a ound
EU accession quali a i ely. Sec ion 6examines p oxima e ac o s o B&R and “old” and
“new” ex-socialis coun ies o bo h he p e-accession and pos -accession pe iods. Sec ion 7
con ains concluding obse a ions, including he implica ions o ou analysis.
2. Li e a u e Re iew
This e iew is o how ins i u ions ha e been de ined and o wha ex en hei ole in
g ow h has been s udied in he con ex o ex-socialis coun ies o Eu ope. Fo comple eness,
i also includes human capi al heo ies.
The seminal wo k on ins i u ions is by No h (1981), who de ines ins i u ions as “a
se o ules, compliance p ocedu es, and mo al and e hical beha io al no ms designed o
cons ain he beha io o indi iduals in he in e es s o maximizing he weal h o u ili y o
p incipals” (pp. 201–202). Nunn (2014) desc ibes ha ules may ei he be codi ied in w i en
laws, egula ions, and ins uc ions o hey may be cul u al ai s, unw i en con en ions,
and p ac ices. Fuchs-Schündeln and Hassan (2015, p. 43) de ine ins i u ions mo e p ecisely.
They de ine ins i u ions as “ he b oad se o ules, egula ions, laws, and policies ha a ec
economic incen i es and hus he incen i es o in es in echnology, physical capi al, and
human capi al”.
Human capi al goes beyond c eden ials o aining and educa ion ha a e use ul o
p oduc ion. I s heo ies ei he emphasize indi idual choice o educa ion wi h minimal
s a e ole o ecognize he ole o he s a e in i . Unde he o me , indi iduals ha e an
incen i e o in es in educa ion wi hou goading by he s a e. The seminal wo k o i is
by Becke (1962), who ocused on he choice o a ep esen a i e indi idual o educa ion
and aining in line wi h mic oeconomic heo y. Howe e , e en wi h i s mic oeconomic
ounda ions, he mo i a ion o s udying human capi al was mac oeconomic— he ole
o lea ning in economic de elopmen , in explaining he Solow (1956) esidue, and as an
addi ional ac o o p oduc ion. On he o he hand, one o he co ounde s o human
capi al heo y, Schul z (1960), emphasized and ecognized he ole o public educa ion in
de eloping human capi al.
Glaese e al. (2004) and Beck and Lae en (2006) analyze he ole o ini ial ins i u-
ional condi ions on g ow h le els and each opposi e conclusions. The o me , analyzing
poli ical ins i u ions, ind cons ain s on he execu i e o be less signi ican han human
capi al as a undamen al sou ce o g ow h. Beck and Lae en (2006) show ha ins i u ional
quali y a ied g ea ly among 24 ex-socialis coun ies and was ad e sely a ec ed by he
ex en o socialis eli es’ en enchmen (posi i ely ela ed o yea s unde socialism) du ing
he immedia e ansi ion pe iod, which, in u n, posi i ely in luenced hei i s decade
o g ow h.
Economies 2025,13, 177 4 o 21
Melki (2022) in es iga es he consequences o income inequali y on in es men in
di e se ins i u ional con ex s, demons a ing ha he ad e se e ec disappea s when p op-
e y igh s imp o e, en seeking by he eli e dec eases, and he ule o law is secu ed. Van
Ees and Bachmann (2006) emphasize he impo ance o o ganizing exchange in anspa en
e sus opaque business ne wo ks o g ow h. The ansi ion economies no longe had he
cen ally planned economic s uc u e o ne wo ks in which economic ansac ions ake
place. Ins ead, new obscu e ne wo ks eme ged o exploi and bene i om a high deg ee o
complexi y and unce ain y, which does no acili a e alue-c ea ing ac i i ies. Kowalewski
and Rybinski (2011) simila ly a gue ha powe ul in e es g oups can al e hei legal
and economic en i onmen o be mo e sel -se ing when inancial, legal, and poli ical
ins i u ions a e weak; Beck and Lae en (2006) sugges ha he socialis eli e emained an en-
enched in e es g oup in he ini ial phase o ansi ion. Johnson e al. (2000) highligh he
impo ance o us wi hin a ne wo k o en e p ises o building new economic s uc u es
a e he ansi ion. By a me a- eg ession analysis o 46 s udies o he e ec s o e o ms
o e ou o eigh yea s on g ow h a es in ansi ion economies, Babeckýand Campos
(2011) ind ha s udies ha include ini ial mac oeconomic and s uc u al dis o ions had a
dec ease o 0.6 in s a is ically signi ican - alue (wi h he a e age being 1.7).
The ask o ansi ion is o build us -based ins i u ions and exchange ne wo ks in a
si ua ion o weak legisla o s and ine ec i e egula ion by bo h ma ke s and by egula o y
agencies. Van Ees and Bachmann (2006) sugges ha he 2004/2007 enla gemen o he
EU was likely o os e anspa en Eas e n–Wes e n i m ne wo ks and a o able mac o-
and meso-ins i u ional amewo ks. Bohle (2018), compa ing Viseg ad and Bal ic coun ies,
discusses how he EU expo ed i s ules, egula ions, and no ms o Cen al and Eas
Eu opean coun ies as hey sough membe ship.
Campos e al. (2019), ollowing he dis inc ion by Law ence (1996) be ween shallow
in eg a ion ( ade ag eemen and o he bo de measu es) and deep in eg a ion (which
includes compe i ion and egula o y policies, as well), de ine he o me as economic
in eg a ion and he la e as ins i u ional in eg a ion. Iden i ying EU enla gemen as
ins i u ional in eg a ion, hey s udy he g ow h e ec s o EU enla gemen om 1973 o 2004.
The p e-2004 EU enla gemen was o he U.K., I eland, and Denma k (in 1973); G eece (in
1981), Spain, and Po ugal (in 1986); and Aus ia, Finland, and Sweden (in 1995). Howe e ,
he 2004 Eas e n enla gemen was like no o he be o e i . The EU sough o ein o ce “ he
applican s a es’ capaci y o main ain he ule o law, uphold economic eedom, p e en
disc imina o y p ac ices, os e domes ic compe i i eness and implemen Eu opean ules
and policies,” (Bohle,2018). Sec ion 5.2 e e s o many ins i u ional changes hese coun ies
adop ed o ob ain EU accession. The EU10’s lack o compa able capi alis and democ a ic
expe ience led he EU15 o ensu e he EU10’s ins i u ional de elopmen , as well.
Campos e al. (2019, p. 54) ob ain mixed esul s o he 2004 Eas e n enla gemen ,
“wi h bene i s ha a e posi i e and la ge o some coun ies, while weak o e en nega i e
o o he s”. They asc ibe he weak esul s o he long p epa a ion p ocess and he an ic-
ipa ion e ec s. I hei accession yea is conside ed as 1998 (since he Eu opean Council
es ablished he p ocess o Eas e n enla gemen in Decembe 1997), he mixed esul s dis-
appea . They c ea e syn he ic con ols o each o hese coun ies (wi h he accession yea
conside ed as 1998) based on a dono pool mos ly om Asian and La in Ame ican coun ies.
Thei syn he ic Czech Republic is based on Sou h Ko ea, Japan, Thailand, and Albania;
syn he ic Es onia on C oa ia, Tu key, and Columbia; syn he ic Hunga y on Mexico, Canada,
Uk aine, Colombia, he Philippines, and 19 o he unspeci ied coun ies; syn he ic La ia on
Columbia, C oa ia, Mo occo, Mexico, and Tu key; syn he ic Li huania on Tu key, Russia,
and Uk aine; syn he ic Poland on C oa ia, Malaysia, Colombia, Sou h Ko ea, U uguay,
Economies 2025,13, 177 5 o 21
and 20 o he unspeci ied coun ies; syn he ic Slo akia on C oa ia and Sou h Ko ea; and
syn he ic Slo enia on Sou h Ko ea, Chile, Canada, Columbia, and Thailand.
Campos e al. (2022) elabo a e ha ins i u ional in eg a ion includes delega ing o a
sup a-na ional en i y con ol o e selec policies. Iden i ying economic in eg a ion wi h
EEA membe ship, hey emphasize he dis inc ion be ween economic in eg a ion and
ins i u ional in eg a ion by conside ing No way. No way joined he EEA in 1995 bu no
he EU. (No way is he only such majo coun y. The o he EEA coun ies ha a e no
membe s o he EU a e Iceland and Liech ens ein.) Using each o he sec o s in he 19
NUTS 3 egions in No way as he ea men uni and he co esponding sec o s om all
(75) NUTS 3 egions o Aus ia, Finland, and Sweden as he coun e - ac ual in addi ion o
he syn he ic DID me hod, hey ind ha No way’s egional p oduc i i y, on a e age, was
0.6% lowe annually o se en yea s because o No way no joining he EU.
Desc ibing he EU as he mos in eg a ed economic in eg a ion in in he wo ld oday,
Cie´slik and Tu gu (2021) examine he e ec s o 2004 EU accession by eigh Eas and Cen al
Eu opean ex-socialis coun ies on hei popula ion-weigh ed a e age income by using
he syn he ic con ol me hod. They use A menia, C oa ia, Is ael, and Uk aine o c ea e
hei single syn he ic con ol uni o he EU8 and ind he immedia e impac o hei EU
accession was modes bu had a g ea e impac once hey joined he Schengen zone in
2007 and could mo e comple ely bene i om he Common Ma ke . Felbe may e al.
(2016) es ima e ha abolishing bo de con ols on ade unde he Schengen ag eemen
was equi alen o a educ ion in a i by 0.7 pe cen age poin s. The g ow h a e o he said
GDP pe capi a o 2004–2012 was 2.7% la ge han ha o he syn he ic EU8.
Ra he han de elop he syn he ic con ol me hod, Callaway and San ’Anna (2021) de-
elop he s agge ed DID p ocedu e o es ima ing he a e age ea men e ec o ea men
(ATET) when (a) he e a e mul iple p e- ea men and pos - ea men pe iods, (b) di e en
uni s a e ea ed in di e en yea s, and (c) he pa allel p e- ea men assump ion holds only
when condi ioned on obse ed a iances. They p opose g oup– ime a e age ea men
e ec s, ATET (g, ), o cap u e he ATET in pe iod o he g oup o uni s i s ea ed in
pe iod g o be es ima ed by a well-de ined ea men e ec pa ame e in he eg ession.
Bake e al. (2022) epo ha s agge ed DID is used hea ily in Finance and Accoun ing
and is suscep ible o bo h Type-I and Type-II e o s. They sugges al e na i e es ima o s.
Kan o owicz and Sp uk (2024) ocus on ins i u ional e o m in 24 ex-socialis coun ies.
By ins i u ional e o m hey mean an all-encompassing ans o ma ion o a planned econ-
omy in o a ma ke economy. While ecognizing ha Eas and Cen al Eu opean coun ies
ha joined he EU ans o med success ully, hey do no examine whe he EU accession
played a ole. They compa e big bang (see Dehejia,1996;Hoen,1996) e sus g adualis
app oaches o ans o ma ion in o a ma ke economy by hese 24 coun ies. They ind a
sus ained big bang app oach is he mos e ec i e, while an abo i e, g adualis app oach
p oduces a comple e b eakdown o g ow h ajec o ies.
This pape examines he e ec s o ins i u ional in eg a ion cum imp o emen and
o ini ial ins i u ions on he g ow h o 10 ex-socialis coun ies ha joined he EU in he
mid-2000s. The closes pape s o ou s udy a e by Campos e al. (2019) and Cie´slik and
Tu gu (2021). Unlike his pape , Campos e al. (2019) and Cie´slik and Tu gu (2021) do no
highligh he ole o ins i u ions, do no examine whe he he e ec s o accession on income
by “new” ex-socialis coun ies di e ed om he “old,” do no examine he e ec s o he
2007 accession coun ies, and do no s udy which p oxima e ac o was behind he boos in
income upon accession. Below, we compa e his s udy o he wo k o Campos e al. (2019)
and Cie´slik and Tu gu (2021) o he ques ion all h ee pape s s udy, namely, he e ec o
2004 accession on income and g ow h.
Economies 2025,13, 177 6 o 21
3. Me hodology, TWFE DID and SCM, and Neo-Classical G ow h Model
The basic hypo hesis o his pape is ha an imp o emen in ins i u ions o ex-socialis
coun ies, whe he om he ini ial low le el o upon EU accession, boos ed hei g ow h.
Sec ion 3.1 desc ibes he me hodology o he wo-way ixed e ec s (TWFE) DID model
used o es ima e he e ec s o joining he EU; Sec ion 3.2 compa es he TWFE DID me hod
wi h he syn he ic con ol me hod, while Sec ion 3.3 ou lines he neo-classical g ow h
model employed o de e mine he p oxima e de e minan s o he accession coun ies’
g ow h bo h p e-accession and pos -accession. The da a o bo h he TWFE DID model
(Sec ion 3.1) and he neo-classical model o all he coun ies is a ailable and collec ed o
he 1991–2014 pe iod.
3.1. Two-Way Fixed E ec s Di e ence-in-Di e ences Model
Econome ic me hods o s udy ins i u ions can be g ouped in o he ollowing: in-
s umen al a iables, eg ession discon inui y, and di e ence-in-di e ences (DID). These
me hods a e cen al o he “c edibili y e olu ion” in empi ical economics. Fo mo e de ails,
see Ang is and Pischke (2010). Among he h ee me hods, DID is likely he mos equen ly
applied. Fo example, Callaway and San ’Anna (2021) call i “one o he mos popula
esea ch designs”, and, as mo e ully explained below, Cu ie e al. (2020) ind ha in
hei da ase , 25% o all mic o pape s e e o DID. Examples o he use o DID o s udy
mac oeconomic ela ionships a e he wo k o Rod ik and Waczia g (2005), Papaioannou
and Siou ounis (2008), and Eh lich e al. (2018).
Le Y
is
ep esen he ou come in coun y iin g oup sa yea ;T ea indica e coun y
i’s ea men s a us in he yea o ea men , ha is, T ea = 1 i coun y iis a ea men
coun y and = 0 i i is a no ; and Pos indica e he pos - ea men pe iod, ha is, Pos = 1
∀
≥
ea men yea and = 0 o he wise. Then, he speci ica ion o a wo-way ixed e ec s
DID model is
Yis =αi+βT ea ×Pos +γ +εis (1)
whe e
β
gi es he a e age ea men e ec o ea men , ATET,
αi
and
γ
indica e coun y
and ime ixed e ec s, espec i ely, and
εis
is he e o e m. This speci ica ion allows o
any co ela ion be ween he ea men dummy and coun y ea u es since he ou come
e ec s o he la e a e cap u ed by αi(Pe sson & Tabellini,2008).
DID design uses he ime end o he un ea ed g oup as he coun e - ac ual. The
coun e - ac ual is no change in he EU membe ship and he ea men is joining he EU.
The pape does no use a s agge ed DID app oach because he ea men is bina y, i akes
place a he same ime o all coun ies in each o he h ee ea men g oups, V4, ELLS, and
B&R, and he p e- ea men pa allel end assump ion is sa is ied o all h ee g oups.
Coun ies whose membe ship s a us in he EU did no change can be used as he
con ol g oup. The e a e wo such g oups o coun ies: he i s is he “old” EU (EU15),
and he second g oup consis s o “new” ex-socialis coun ies ha did no join he EU and
became he co e o CIS. Coun ies om he EU15 a e used as he con ol g oup since hei
economic s uc u e is close o ha o he EU10. The ene gy sec o is dominan in CIS
coun ies in he sample (Kazakhs an and Russia) o ag icul u e (A menia, Ky gyzs an, and
Tajikis an), and a majo i y (A menia, Kazakhs an, Ky gyzs an, and Tajikis an) a e loca ed
in Asia. Following Campos and Co icelli (2002), who sugges ha coun ies a simila
le els o pe capi a income and economic s uc u e should be used as compa a o s, he
coun e - ac ual om he EU15 would be mos applicable. Acco dingly, his pape uses ou
EU15 coun ies—whose a e age income o he es ima ion pe iod (1991–2014) was closes
o ha o he EU10. These coun ies a e F ance, G eece, Po ugal, and Spain, “FGPS.” In
ac , using FGPS as he con ol g oup (ins ead o CIS) is mo e conse a i e o he e ec s o
EU accession on income, since he EU10’s income ela i e o ha o FGPS inc eased less
Economies 2025,13, 177 7 o 21
(by 20 pe cen — om 0.65 o 0.80) du ing he es ima ion pe iod han he EU10’s income
ela i e o ha o CIS (which almos doubled— om 1.4 o 2.7).
FGPS al eady had a ela i ely high le el o ins i u ional de elopmen . EU10 coun ies
ecei ed he same ea men : a se o measu es and egula ions ha EU membe ship
equi ed. Thei membe ship in he EU occu ed only a e adop ing/ag eeing o adop
EU ules, egula ions, and no ms as well as ag eeing o being subjec o he EU’s (newly
c ea ed) moni o ing and su eillance mechanisms. As no ed abo e, he EU sough o
ein o ce “ he applican s a es’ capaci y o main ain he ule o law, uphold economic
eedom, p e en disc imina o y p ac ices, os e domes ic compe i i eness and implemen
Eu opean ules and policies,” (Bohle,2018, p. 8). The EU did ha o ensu e ha he
EU10 no only ins i u ionally in eg a ed wi h he EU bu also eached he same le el o
ins i u ional de elopmen as he EU15, including FGPS. The me hod used in he pape
(TWFE DID) is sui able o e alua e he e ec s o ins i u ional in eg a ion and ins i u ional
de elopmen ha he EU10 achie ed a e ag eeing o such ex e nally imposed condi ions.
3.2. TWFE DID and Syn he ic Con ol (SC) Me hods
This sub-sec ion compa es he wo-way ixed e ec s DID (TWFE DID) and syn he ic
con ol (SC) me hods and gi e easons o choosing he o me .
Cu ie e al. (2020) ind ha al hough in hei da ase (NBER pape s om 1 Janua y
1980 o 30 June 2018 and pape s in “ op i e” economics jou nals be ween 1 Janua y 2004
and Augus 2019), he i s pape using DID was published only in 1985 (Ashen el e &
Ca d,1985), abou 30 yea s la e , 25% o all mic o pape s e e o DID. They also no e
ha SC, al hough a newcome (i was in oduced by Abadie and coau ho s (Abadie &
Ga deazabal,2003;Abadie e al.,2010,2015)), has made apid ad ance since 2010.
The undamen al assump ions o TWFE DID and SC me hods a e closely ela ed
(A khangelsky e al.,2021). TWFE DID assumes he p e- ea men end lines o ea ed
and con ol uni s a e pa allel—pe mi ing addi i e ixed uni e ec s. I is bede iled by he
p oblem o inding a obus coun e - ac ual ha sa is ies he pa allel end-line assump ion.
See Bol ho and Eicheng een’s wo k (Bol ho & Eicheng een,2008). SC c ea es a syn he ic
con ol uni by weigh ing non- ea ed uni s so ha i s p e- ea men end is ma ched o
aligned (no jus pa allel) o he ea ed uni . I is bede iled by he p oblem o c ea ing
his syn he ic con ol uni ha ma ches. Campos e al. (2022) obse e ha by using a
con ex combina ion o con ol uni s, ma ching allows o a be e coun e - ac ual han DID
(which is based on a simple a e age). Howe e , bo h DID and SC me hods assume he
con ol o dono uni s a e no a ec ed by he ea men . Since he di ec ion o he spillo e
e ec s is ha d o de e mine, mos esea che s igno e he spillo e e ec s o ea men .
The p e- ea men ma ching pe mi s ime- a ying un-obse ables, while DID can only
pe mi ime-in a ian and common end e ec s. Abadie e al. (2015) explain ha since
he weigh s can be es ic ed o be posi i e and sum o one, SC p e en s ex apola ion ha
a DID eg ession does no , since he eg ession weigh s can be ou side he [0, 1] in e al.
Since ma ching equi es ha each ea ed uni has a sepa a e ma ching syn he ic uni ,
A khangelsky e al. (2021) obse e ha DID is used when he e a e a subs an ial numbe o
uni s ea ed and SC when he e is a single (o a small numbe o ) uni ea ed.
G ie and G ie (2021) poin ou he ollowing. A TWFE DID ATET gi es a weigh ed
a e age o he indi idual ea men e ec s. I he ea men e ec s a e he e ogenous ( o
example, i he la e adop e s ha e a di e en a e age e ec han he ea lie adop e s),
ATET is biased and may e en ha e he opposi e sign o he ue e ec . On he o he
hand, uni e ec s gi en by he syn he ic (o ma ching) con ol me hod a e simply a e aged
(unweigh ed) so ha he ATET is unbiased unde s agge ed ea men and ea men e ec
he e ogenei y. The chie conce n wi h he syn he ic con ol me hod is ha he e may be
Economies 2025,13, 177 8 o 21
ime-in a ian un-obse ables ha a ec selec ion in o bo h con ol and ea men a iables
ha canno be con olled in he ma ching p ocess. The TWFE DID simply sweeps away he
un-obse ables. An and Winship (2017) sugges using he syn he ic con ol me hod a e
di e encing so ha he un-obse ables a e emo ed.
The ea men e ec in he ma ching me hod is no a coe icien in a eg ession as in
TWFE DID. Once he exac ma ching is accomplished, he ea men e ec is simply he
di e ence be ween he ou come in he ea ed uni and ha in he syn he ic con ol uni . I
he eby pe mi s an examina ion o he dynamics o he pos - ea men e ec , which TWFE
DID canno do. Howe e , some imes exac ma ching may no be easible. Tha will be
he case when he cha ac e is ics o ma ch a e many. The e is also a ques ion o choice o
implemen ing he ma ching me hod. G ie and G ie (2021) use ou ypes o me hods:
ma ching o he nea es neighbo , o he a e age o wo nea es neighbo s, and o he
a e age o h ee nea es neighbo s, and ke nel ma ching. Campos e al. (2022) i s ma ch
by sec o all 19 NUTS 3 egions o No way o all 75 NUTS 3 egions o Aus ia, Finland,
and Sweden (mul iple- ea ed), and hen hey ma ch each sec o o a NUTS 3 egion o
No way o he same sec o o egions o Aus ia, Finland, and Sweden (single- ea ed).
This pape chooses he TWFE DID empi ical model o e he SC me hod o he
ollowing easons. The au ho was able o ind a obus coun e - ac ual ha me he pa allel
p e- ea men end lines o ea ed and con ol uni s equi ed o TWFE DID. The con ol
uni s we e also in Eu ope and as close in pe capi a income (indica ing a simila economic
s uc u e) as he ea ed uni s. Since he SC me hod ma ching is exac , he ime- a ying
p e- ea men un-obse ables pe mi ed by i a e a p oblem— hey may also a y pos -
ea men . Then, he e ec shown by i will no only show ha o he ea men bu also ha
o he a ying un-obse ables pos - ea men . Since he pape conside s ha all uni s in he
h ee g oups, V4, ELLS, and B&R, adop he ea men simul aneously, he ad an age he
SC me hod has wi h s agge ed adop ion is no ele an . Also, his pape is no in e es ed in
he dynamics o he ea men e ec bu in he o e all e ec o ea men o which TWFE
DID is qui e sui able.
The a iables needed by he TWFE DID a e he sample alues o he objec i e o
ea men o bo h he ea ed and con ol uni s. This pape ’s objec i es a e o s udy he
e ec s o joining he EU on income. I needs da a on he pe capi a income o ea ed and
con ol coun ies o he sample pe iod.
3.3. Neo-Classical G ow h Model and P oxima e Fac o s o G ow h
The pape uses kl o physical capi al pe uni o employed labo , h o a e age human
capi al ( ha is, quali y o labo o a e age educa ional a ainmen ) in a coun y, and A o
he e iciency wi h which physical capi al and human capi al a e used, namely, TFP. (The
main p oblem in de eloping he human capi al measu e is cons uc ing da a on a e age
yea s o schooling. Inklaa and Timme (2013) explain ha PWT 9.0 uses a e age yea s o
schooling da a o 95 coun ies p ima ily om Ba o and Lee (2013) and o 55 coun ies
p ima ily om Cohen and Leke (2014) and Cohen and So o (2007), and he assumed a e o
e u ns o yea s o schooling on Mince ian equa ions links he wo a ound he wo ld as in
Psacha opoulos (1994).) These ac o s, physical capi al, human capi al, and TFP, a e called
“p oxima e” causes by Rod ik (2003) and dis inguished om “ undamen als” o g ow h
like us , geog aphy, ins i u ions, cul u e, and gene ic dis ance. Using he neo-classical
g ow h model, he le -hand side hen would be he ou pu pe uni o employed labo .
Le pe capi a income, y
J
, app oxima e ou pu pe wo ke and igno e he ime sub-sc ip s.
Then, o Coun y J,
yJ=AJklJαhJ1−α(2)
Economies 2025,13, 177 15 o 21
Table 5. G ow h ac o s o EU accession coun ies.
V4 ELLS Bulga ia and Romania
1991–2003 2004–2014 1991–2003 2004–2014 1994–2006 2007–2014
Human Capi al −0.2641 a0.2026 a−0.1515 a0.8018 a−0.0528 0.5310 b
(0.0497) (0.0767) (0.0215) (0.1301) (0.0788) (0.2129)
K/L Ra io 0.4406 a0.2658 a−0.0318 0.0241 0.2865 b0.1199
(0.0930) (0.0405) (0.0508) (0.0343) (0.1156) (0.0783)
TFP 0.5808 a0.7580 a0.6938 a0.8577 a0.2131 a0.0590
(0.0616) (0.0872) (0.0369) (0.0998) (0.0527) (0.0786)
No. o Obs. 52 44 52 44 26 16
R-sq 0.6766 0.9417 0.8908 0.9095 0.6719 0.9386
No es: As abo e. All he panels a e s ongly balanced. a and b indica e signi icance a he 1% and 5%
le els, espec i ely
.
Figu e 3depic s he a e age human capi al o he h ee g oups o coun ies o he
1991 o 2014 pe iod. Human capi al g ows linea ly o all h ee g oups—i is no g owing
as e pos -accession. Ye , i is he only p oxima e ac o ha is s a is ically signi ican o all
h ee g oups o coun ies pos -accession. Ku an and Yigi (2007) ind ha bo h imp o ed
p oduc i i y and physical capi al accumula ion explain he highe pos -accession g ow h o
he las i e membe s ha joined he EU and inc eased i s membe ship o 15, namely, Spain,
Po ugal, Aus ia, Finland, and Sweden. Fo he EU10, i is human capi al, ins ead. Da a on
he ins i u ional quali y o Spain, Po ugal, Aus ia, Finland, and Sweden o o o he coun ies
in he EU15 when hese coun ies joined he EU is no a ailable. Bu i is e y likely he
ins i u ional quali y o Spain, Po ugal, Aus ia, Finland, and Sweden was close o ha o he
es o he EU15 when hey joined he EU as compa ed o ha o he EU10 when hey joined
he EU15. When ins i u ional quali y was almos he same, EU accession boos ed he income o
he joine s ia TFP and physical capi al; when i was di e en , i boos ed i ia human capi al.
2.7
2.9
3.1
3.3
3.5
3.7
1990 1995 2000 2005 2010 2015
V4 ELLS B&R
Figu e 3. Human capi al, V4, ELLS, and B&R, 1991–2014.
The abo e analysis shows human capi al is he mos impo an ac o explaining bo h
(i) highe g ow h o V4 and (ii) all g ow h o ELLS ollowing EU accession. EU no ms
educed (i no elimina ed) he di e gence o human capi al’s ou pu and income o o he s,
pe mi ed i o wo k in anspa en ne wo ks, and inc eased i s incen i e o wo k. The
new access o he EU’s Social Fund (ESF; see Kechagia & Ky iazi,2021, o i s desc ip ion)
os e ed he adap abili y o wo ke s and enhanced hei access o employmen and labo
ma ke s. The esul emphasizing human capi al is consis en wi h he wo k o Ma in
(2010), who, a e examining in de ail Ge man and Aus ian in es men unde akings in
Eas e n Eu ope in 2010, inds ha hese coun ies eloca ed hei skilled jobs o cheape Eas
Eu opean loca ions. Eas Eu opean labo did no acqui e job skills on EU
accession— hese
coun ies’ human capi al, measu ed by, say, a e age yea s o schooling, was be e a
ansi ion han he OECD a e age (and did no go down in he 1990s). See Ba o and
Lee (2001). Campos and Co icelli (2002) highligh Cen al and Eas Eu opean coun ies’
Economies 2025,13, 177 16 o 21
p e- ansi ion human capi al de elopmen by sugges ing ha jus compa ing hei pe
capi a income o ha o he EU15 a ansi ion igno es he e o s hese coun ies de o ed o
imp o ing educa ion and heal h du ing socialism. Labo , wi h he same skills hey had o
decades, c ea ed mo e alue wi h he igh ins i u ions.
Glaese e al. (2004, p. 5) (as no ed abo e) ind ha “ini ial le els o cons ain s on
he execu i e [ ha hey iden i y as good ins i u ions] do no p edic subsequen g ow h,
whe eas ini ial le els o human capi al con inue o be s ong p edic o s.” In ou iew, he
iden i ica ion o ins i u ions as cons ain s on he head o he s a e ( o example, whe he
a coun y has an uncons ained dic a o ) o on he go e nmen in gene al is na ow. In
addi ion o “a se o ules, compliance p ocedu es,” ins i u ions a e also “mo al and e hical
beha io al no ms” ha “cons ain he beha io o indi iduals.” (No h,1981, pp. 201–202).
Tha is, ins i u ions include meso- and mic o-ins i u ions. The collapse o communism
mean a dilu ion o cons ain s a all le els (s a e, ci y, en e p ise/o ganiza ion, and indi-
idual) and he eme gence o opaque business ne wo ks. I c ea ed poo ins i u ions ha
did no pe mi skilled human capi al o con ibu e o g ow h. Ins i u ional changes wi h
EU accession imp o ed hese poo ins i u ions—ex e nally imposed cons ain s by he EU
eplaced hese opaque ne wo ks by anspa en ne wo ks.
E osa e al. (2010) cons uc a model o he e ogeneous indi iduals o quan i a i ely
compa e he e ec s o TFP and human capi al on c oss-coun y income di e ences. They
ind human capi al ampli ies he e ec o TFP di e ences by abou ou old. Hanushek
e al. (2017), while inding esul s o be insensi i e o di e ences in p ice le els ac oss s a es
(a ailable since 2008), show ha di e ences in human capi al accoun o 20 o 30 pe cen
o di e ences in pe capi a GDP o s a es wi hin he US. This pape inds a a g ea e ole
o human capi al in si ua ions when ins i u ions change and imp o e.
The pape uses pe capi a income as he dependen a iable o bo h he TWFE DID
model and he neo-classical g ow h model. Technically, o he neo-classical g ow h model,
he dependable a iable is pe wo ke ou pu . The pape uses pe capi a ou pu o he neo-
classical g ow h model as well o ha e he same dependable a iable o bo h he es ima ions.
Fu he , i assumes he same p opo ion o he popula ion is employed in he EU10 coun ies
bo h be o e EU accession and a e i . Howe e , his assump ion may no be ue.
7. Conclusions
The b oade implica ion o his pape is ha good ins i u ions a e c ucial in middle- o
high-income coun ies, as well. Fe nald e al. (2017) asc ibe slowe pos -G ea Recession
eco e y in he US o slowe g ow h o TFP, and Hanushek e al. (2017) ind human capi al
accoun s o 20 o 30 pe cen o di e ences in he pe capi a GDP o s a es wi hin he US.
This pape inds a g ea e ole o human capi al on g ow h han ei he o hese s udies. I
analyzes i s ole when ins i u ions can change, and, like Rossi (2020), inds human capi al
and ins i u ions o be complemen a y.
The policy implica ions o his s udy a e wo old. Fi s , his s udy highligh s he
a iables ha p e-dispose an economy’s ins i u ional quali y o imp o e as a esul o
egional economic in eg a ion. These a e a long pe iod (o e many decades) o no ha ing
been capi alis democ acies, ini ial low ins i u ion quali y le els, bu dened wi h c ea ing
ins i u ions due o eme ging as independen coun ies, say, a pos -colonial independence,
and when he exis ing membe s o he in eg a ed en i y condi ion membe ship o aspi an s
o an upg ade in hei ins i u ions. The EU10’s accession o he EU is a p ime example o
coun ies/ egions mee ing one o mo e o hese condi ions.
Second, his s udy ecommends ha ins i u ions ough o be imp o ed o pe mi ac o s
o p oduc ion o c ea e alue hey a e capable o . Human capi al in PWT is measu ed based
on yea s o schooling. Howe e , compa a i e esea ch based on esul s om TIMMS and
Economies 2025,13, 177 17 o 21
la e PISA has demons a ed ha he quali y o a yea o schooling di e s subs an ially
ac oss coun ies. See Hanushek and Kimko (2000). Di ec ions o u u e esea ch a e o
upda e he analysis when quali y-adjus ed da a on human capi al a e a ailable.
Funding: This esea ch ecei ed no ex e nal unding.
Ins i u ional Re iew Boa d S a emen : No applicable.
In o med Consen S a emen : No applicable.
Da a A ailabili y S a emen : The da a ha suppo he indings o his s udy a e openly a ail-
able in Penn Wo ld Table e sion 9.0 a h p://www. ug.nl/ggdc/p oduc i i y/pw accessed on
2 Janua y 2021.
Con lic s o In e es : The au ho decla es no con lic s o in e es .
Appendix A
Figu e A1. G aphical diagnos ics o pa allel ends o V4.
Figu e A2. G aphical diagnos ics o pa allel ends o ELLS.
Economies 2025,13, 177 18 o 21
Figu e A3. G aphical diagnos ics o pa allel ends o B&R.
0.9
1.4
1.9
2.4
2.9
3.4
3.9
4.4
0 5 10 15 20 25
Bulga ia Czechia Es onia
Hunga y La ia Li huania
Poland Romania Slo akia
Slo enia
Figu e A4. T ade and o eign exchange ansi ion indica o , 1990–2014; EU10 coun ies.
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